Annual Report 2014
From April 1, 2013 to March 31, 2014.

Securities Code 4775

Business Operations

Good Medicine
through Good Management
Medical institutions like hospitals and clinics need good management to practice good medical care.
Practicing good medical care from the outset, however, also results in good management.
Therefore, good medical care and good management are both essential to the provision ofefficient, high-quality healthcare. When treating patients, doctors have pride and a sense of
mission that cause them to do everything in their power for the patient they are treating.
Consequently, Sogo Medical’s mission is to provide the institutional support that enables
doctors to focus on the provision of this good medical care.

Growth Strategy

Financial Reports

Contents
Business Operations

02
06

Business Overview
Financial Highlights

Growth Strategy

08
20
22
26
30

President’s Message
Segment Information
Higashinihon Office
Nishinihon Office
Kyushu Office

At Sogo Medical, a unique set of management principles is at the center of the workthat we do and the way we undertake it. Our Pledge dedicates our lives
to valuing human life through our vocation and putting our hearts into our work.
The Mission Statement declares the Company’s purpose.
Our Corporate Credo outlines the assurances and promises we make to society.

Our Pledge

Mission Statement

We shall, in our own lives, highly value

We shall work to build a better society
through good medicine.

the irreplaceable lives of others.
We shall strive always to be right-thinking,grateful, diligent, modest, honest, refined,

1. We shall be a company that values each life
as irreplaceable.

We believe that our work contributes

2. We shall be a good partner to our suppliersand earn their trust.

benefits many people, andshall therefore conduct our work
responsibly and efficiently.
We shall not hesitate to do goodnor prevent harm.

SOGO MEDICAL CO., LTD.

Corporate Credo

straight and fair independent people.

to the advancement of society andCorporate Governance

34
36

Directors, Audit & Supervisory Board Members
and Corporate Executive Officers

39

CSR for the Sogo Medical GroupManagement Principles

Financial Reports
Five-Year Summary of Consolidated
Financial Statements

41
42
48
50

Management’s Discussion and Analysis
Risk Information
Consolidated Financial Statements

56
57

Corporate Information
Stock Information

3. We shall encourage our employees to live
full lives, and grow together with them as
a company.
4. We shall seek to cultivate the character,skills, and insight of each employee, to meet
our responsibilities both as a company as awhole and as individual citizens.

A cautionary note on forward-looking statements:* This annual report contains forward-looking statements relating to performance projections and future predictions thatare based on judgments made in light of information available at the time of writing, and as a result includes risks anduncertainties. For this reason, there is a possibility that actual results may differ from such forecasts.

Annual Report 201401

Business Operations

Growth Strategy

Financial Reports

Business Overview

To build a better society
through good medicine

Toward a Better Society in which People can Live with a Sense of Security
At Sogo Medical, the concept “good medicine throughgood management” is the foundation for our mission
to contribute to making a better society by supporting

Good Medicine
through Good Management

Providing Total Consulting-Based Medical Management Support
Sogo Medical offers total consulting-based medical
provide efficient, high-quality healthcare. We are engaged

regional healthcare. With our long-term vision of realizing

in a variety of activities that support good medicine.

the challenge of a Japanese healthcare business model,

From helping to stimulate local medical practices

we are advancing our efforts to build a base of regional
healthcare networks through our DtoD (Doctor to

Mission Statement

through doctor introductions, succession of medical

We shall work to build a better society through good medicine

practices support, and coordinated medical care by

Doctor) system and high-value pharmacies as part ofour medium-term management plan.
Through these business activities, we will contributeto building a society that solves the challenges facing

Dispensing
Pharmacies

management support that enables hospitals and clinics to

DesignConstruction

RentalMedicalInstitutions

our DtoD system to establishing over 500 dispensing
Long-Term Vision
Establish a Japanese healthcare business model

pharmacies nationwide, we also lease medical equip-

Leasing

Patients

ment and rent TVs to help improve the quality ofLong-TermCareamenities for patients.

it, and a society in which people can live with a senseof security.

Medium-Term Management Plans
Further Challenge—Toward a better society in which people can live with a sense of security—

DtoD System
Management Consulting

02

SOGO MEDICAL CO., LTD.

Annual Report 201403

Business Operations

Growth Strategy

Financial Reports

Business Overview

Medical Practice Support

Please refer to page 44 for our achievements in Pharmacies.

Other Activities

Percentage
of total sales

1.3%

We are expanding business with Sogo Care Network
Co., LTD., which manages fee-based residential homes
for the elderly, and Sun Villa Co., LTD., which manages
fee-based homes with long-term care for the elderly.

Doctors inpublicpractice

Doctors inprivatepractice

Support

Sogo
Medical

pp

Su

Su

pp

Registrationce

Hospitalsmtio ent
n of
str hea
uct lthcare
ures

n
tio
tra

ort

n

69.9%

Introduction of
successor, Success
dence
ion
pen
de
In

io
rat

Percentage
of total sales

We operate our patient-oriented Sogo Pharmacies, aswell as dispensing pharmacies that pursue service ofthe highest quality. We actively open new pharmacies
near clinics and hospitals, and health care malls which
we provide medical start-up support through our DtoD
system. In addition, we provide our pharmacists withtraining programs, nutrition consultation from nationallycertified senior nutritionists, and self-medication
support, thereby ensuring our pharmacies provide
genuine added value.

Change of practice,
Support forlaunch of practice

t
gis
Re

Pharmacies

DtoD systeme,tic tiac ac
f pr prChange o blic
Change to pu

Please refer to page 42 for our achievements in Medical Practice Support.

The DtoD system is a framework that supports both theambitions of doctors and the provision of good medicine.
For example, services centered on the DtoD system provide
a wealth of nationwide placement data to doctors wishing tochange their practice, suggesting those opportunities thatoffer the best match. The DtoD system also provides total
support to doctors seeking to go into private practice,from practice start-up preparation, including drawing up
of management principles and a business plan, throughpost-launch follow-up. The system can also introduce
successors to medical practice owners who have worked
to build up a practice over many years when they haveno-one in place to carry forward the business. We also
introduce hospitals to superior doctors who meet theirneeds and we support overall healthcare coordination.
The DtoD system also connects hospitals, doctors inpublic practice, and doctors in private practice within theregion, contributing to the creation of important ties among
practitioners to realize efficient, high-quality healthcare.

gis

28.8%

Contributing to the Revitalization of Local Medical Carethrough the DtoD (Doctor to Doctor) System

Re

Percentage
of total sales

We conduct management consulting to formulate
standard ideas and to support management
improvement practices centered on the medical
institution. We also put into practice our DtoD system,
which supports doctors who are wishing to start-up ortransfer practices, as well as healthcare coordination.
We are also involved in other ways of supporting
medical practices, such as renting TVs for patients in
the hospital, leasing medical equipment, and planningthe design and construction of medical and long-termcare facilities.

ort

h
lis a
ab dinEst oorc

Introduction of superior doctors
Support for overall healthcare coordination

High-Value Pharmacies with Local Roots
Focusing on our Sogo Pharmacies, we have expanded toover 500 dispensary pharmacies nationwide to serve as“general health stations.”
By putting our pharmacists’ abilities to work, wehave promoted in-home medical care, supported disease
prevention efforts and offered self-medication support,
and accelerated the use of generic pharmaceuticals, allto promote high-value pharmacy creation.
Also, through our independent training system, weare furthering our efforts to improve the quality of our
medical service by providing our pharmacists with thenecessary medical knowledge, communication ability,
pharmaceutical affairs, technical skill, and proper attitude.

Promote in-homemedical care

Supportdiseaseprevention efforts
and offerself-medication
supportAccelerate useof genericpharmaceuticals

Apply information and communication
technologies (ICT) to strengthen customer service
Promote standardization

04

SOGO MEDICAL CO., LTD.

Annual Report 201405

Business Operations

Growth Strategy

Financial Reports

Financial Highlights
Ten-Year Summary of Consolidated Financial Statements
2005

As of or for the Years Ended March 31

2006

2007

2008

2009

2010

2011

2012

2013

Targets for the year ending March 2015

2014

Consolidated
Net Sales

Operating Results
Net sales(¥ million)

49,34854,98659,67664,47465,87970,42772,78980,22286,658103,318

Operating income(¥ million)

1,321

1,630

1,676

3,016

2,471

3,268

4,148

4,848

4,324

5,014

Ordinary income(¥ million)

1,197

1,603

1,741

2,998

2,555

3,297

4,212

4,881

4,343

5,068

Net income(¥ million)

616

951

934

1,716

1,277

1,541

2,167

2,504

2,532

2,856

Total assets(¥ million)

26,44527,582

28,31629,541

29,92636,27343,05753,16057,13866,982

Total net assets(¥ million)

8,069

9,134

9,671

14,737

15,051

15,932

17,421

19,511

21,63623,934

Cash flows from operating activities(¥ million)

2,842

1,271

552

2,543

1,353

3,237

4,179

4,484

7,269

7,461

Cash flows from investing activities(¥ million)(1,083)

(284)

(375)

(2)

(1,118)(1,535)(4,111)(4,086)(3,380)(5,335)

Cash flows from financing activities(¥ million)(2,051)(1,337)

(263)

617

(2,181)(158)(1,275)(170)(2,777)(1,370)Net income per share(yen)

101.58151.50150.71248.87168.08210.70299.33346.93350.81395.64

Net assets per share(yen)

1,324.36

1,471.73

1,551.75

1,925.46

2,001.72

2,170.05

2,413.16

2,702.78

2,993.28

3,311.46

Cash dividends per share

(yen)

12.50

25.00

25.00

50.00

50.00

50.00

60.00

70.00

80.00

80.00

111.0

¥

Consolidated
Ordinary Income

5.1

billion¥billionFinancial Position

Cash Flows

Financial Highlights
for the year ended March 2014
Net Sales

103.3 billion(%)

Ordinary income to total assets ratio
Operating income to net sales ratio

8.1

11.1

10.0

14.1

8.6

10.0

13.1

13.6

12.3

12.6

(%)

4.4

5.9

6.2

10.4

8.6

10.0

10.6

10.2

7.9

8.2

(%)

2.7

3.0

2.8

4.7

3.8

4.6

5.7

6.0

5.0

4.9

Capital adequacy ratio

(%)

30.5

33.1

34.1

49.6

50.1

43.3

40.5

36.7

37.8

35.7

Net debt-to-equity ratio(times)

0.6

0.4

0.4

(0.1)

(0.0)

0.1

0.3

0.5

0.4

0.4

(%)

12.3

16.5

16.6

20.1

29.7

23.7

20.0

20.2

22.8

20.2

(people)

1,444

1,487

1,473

1,614

1,704

1,914

2,097

2,195

2,508

2,650

(¥ trillion)

32.1

33.1

33.1

34.1

34.8

36.0

37.4

38.5

*

*

Revision of medical fees (core)

(%)

±0

—

(1.36)—(0.38)—(1.55)

—

+1.38

—

Revision of drug prices

(%)

(4.2)

—

(6.7)

—

(5.2)

—

(5.75)

—

(6.0)

—

Dividend payout ratio
Number of regular employees(Excluding part-time employees)

Ordinary Income

5.0 billion

16.7%

¥

YoY +

Expanded medical practice support business
together with pharmacy business

Point

Net Income

2.8 billion

12.8%

¥

YoY +

Record-high earnings for 5 consecutive years

Point

Total Net Assets

23.9 billion

Market Information
National medical care expenditure*

YoY +Increased revenues for 13 consecutive years
since going public

Point

Financial Indicators
Net income toshareholders’ equity ratio (ROE)

19.2%

¥

Per Share Data

10.6%

¥
Point

YoY +

Capital adequacy ratio 35.7%, net debt / equity
ratio 0.4 times* Data for 2013 and 2014 has not been published at the time of writing.

Net Sales

Operating Income / Operating Income to Net Sales Ratio
Operating income

Operating income to net sales ratio¥103.3 billion

49.3

54.9

59.6

64.4 65.8

70.4 72.7

80.2

2.7

06

SOGO MEDICAL CO., LTD.

1.6
4.7

3.0

2.8

3.8

4.6

ROE

¥ 66.9 billion

53.1¥ 23.9 billion

21.6

57.1

19.5

43.0

2.4
1.6

Total net assets¥ 5.0 billion

3.2

3.0

Total Net Assets / ROE

Capital adequacy ratio

4.3

4.1

1.3

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Total assets

4.8

86.6

Total Assets / Capital Adequacy Ratio

5.7

6.0

5.0

4.9%

2005 2006 2007 2008 2009 2010 2011 2012 2013 201429.5 29.9
26.4 27.5 28.3
49.6 50.1
30.5 33.1 34.1

14.7 15.0

36.2

43.3 40.5

8.0
36.7 37.8 35.7%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

8.1

9.1

15.9

17.4

9.6

11.1 10.0

14.1

8.6 10.0

13.1 13.6 12.3 12.6%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Annual Report 201407

Business Operations

Growth Strategy

Financial Reports

President’s Message

Contributing to Society
through the Provisionof Valuable Service

Reflecting on Previous Medium-Term Management Plan

P10

General Outline
Overview of Financial Results for Fiscal Year Under Review

Starting New Medium-Term Management Plan

P13

Priority initiative 1: Undertaking New Businesses
Priority initiative 2: Improving Existing Businesses
Priority initiative 3: Enhancing Corporate Value

Long-Term Vision for Management Issues
and Business Measures

P16

Revenue Growth
Expanding Medical Practice Support Business
Taking Initiative in Long-Term Care Business

CSR Activities as Healthcare Corporation

P19

Some Final Words

P19

Itsuo Tashiro
President & Representative Director

08

SOGO MEDICAL CO., LTD.

Annual Report 201409

Business Operations

Growth Strategy

Financial Reports

President’s Message

Reflecting on Previous
Medium-Term Management Plan

Therefore, as we grow even further, accumulating assets that do not appear on
the balance sheet is essential for realizing the better society we aim to help create.
Specifically, we collect information from new practice questionnaires to expand
practice start-up support and perform pharmacy economic comparisons as research

General Outline“Creating the foundation to be the leader
in all our business domains” by taking initiatives
under various management themes.
In our previous three-year medium-term management plan, which started in thefiscal year ended March 2012, Sogo Medical set the performance target to achieve¥100 billion in net sales and ¥5 billion in ordinary income over the term of the plan.
In addition, to realize our long-term vision of establishing a Japanese healthcare
business model, we pursued various measures in all of our businesses.
In our ongoing medical practice support business initiatives, we ventured into new
businesses, such as entering into the long-term care services and actively promoting
the development of health care malls that meet the demands of regional communities. Additionally, we expanded measures that will tie into future growth, such asproviding support to doctors who are seeking to start their own practice andproviding total medical management consulting for medical institutions. Furthermore,in the pharmacy business, we not only achieved the goal of establishing over 500
new dispensing pharmacies, together with a large number of new pharmacies
joining Sogo Medical, we were also able to commit to creating “general healthstations” with roots in regional communities.
Through these initiatives, we can say with confidence that the actual result for theterm of the plan’s fundamental policy, “Creating the foundation to be the leader in all

for new pharmacy openings. In this pursuit, we have conducted 493 new practicequestionnaires and performed 130 pharmacy economic comparisons. This has not
only resulted in the creation of assets that do not appear on the balance sheet, butalso these initiatives have created a real feeling of importance attached to theprocess, which can be felt permeating throughout the workplace.
When it comes to human resource development, Sogo Medical bases its perspective on the idea that as our company grows, our employees grow with it. In
supporting the medical practice support business, we have made advancements
through our Practice Process Innovation (PPI) systems in start-up support and talent
recruitment, and in human resource development initiatives applied in our pharmacy
business. Also, as a training program for maximizing our pharmacists’ work ability,
our Gradable OJT (on-the-job training) Educational System (GOES) has made great
strides in developing pharmacists who are trusted by both patients and doctors.
In these ways, we worked vigorously toward achieving our medium-term management plan goals. However, due to the influence of our allocation of personnel,
which did not reflect the market size of the Higashinihon, Nishinihon, and Kyushu
segments, and the fact that our selection and integration of management resources
did not go as planned, we were unable to achieve our most prioritized targets. As
a result, we cannot yet say that our goal of building a regional healthcare networks
has been realized. However, under tight public funding, we continue to push further
toward the realization of a society where people can receive effective high-quality
medical services.

our business domains” is connected to the vision our company as a whole is aiming
for, the creation of a better society.

Previous Medium-Term Management Plan Results
Practice Process Innovation (PPI)Internal Certification

Gradable OJT Educational System (GOES)
for Pharmacists

Start-Up Support PPI

Implementation skills(ability to perform)

Bu

sin

nce

rma

erfo

p
ess

Level II

• Introductory residential training
course for new
employees hired
regularly

Upgrading Training• OJT / Blocktraining for new
employees• Practical skill training(pharmaceutical affairs,
technical skills, attitude)• Follow-up
training

Knowledge and skills(ability to retain)
Level I

Upgrading Edition

Leadership skills• Physical assessment training

New Employee
Training

Pharmacy Management PPIPPI Skills for Different Levels• Communication training• In-home medicalcare training• Overseas training• Medical knowledge
training

SOGO MEDICAL CO., LTD.

Prioritized Targets
Start-up Support:
750 projects by the end of March 2014 (three-year total)
Number of Pharmacies:
500 pharmacies by the end of March 2014

• Develop board
certified pharmacy
specialist

Management and Promotion of Management Contracting:
30 projects by the end of March 2014
Positioned as (Regional) Top Ten Company that People
Would Like to Work For*

Level III

Level IV

Results¥103.3 billion¥5.0 billion

Results
689 projects
493 pharmacies
19 projects
13th in Fukuoka

Level V

Gradable OJT Educational System (GOES) for Pharmacists

10

Net Sales: ¥100 billion
Ordinary Income: ¥5 billion

Personnel Introduction PPI

PPI

Performance Targets* Source: The Nihon Keizai Shimbun, Nikkei Recruiter Navi, February 17, 20142014 Kyushu, Yamaguchi, and Okinawa editions of the New Graduate Spread

Annual Report 201411

Business Operations

Growth Strategy

Financial Reports

President’s Message

Overview of Financial Results for
Fiscal Year Under Review

Starting New Medium-Term Management Plan

Achieving our performance targets:
We are not satisfied with the results.
We will aim for further growth.

In the operating environment, not only has the consumption
tax rate been raised in April 2014, but also national medicalcare expenditures continue to rise, with the expenditures
expecting to exceed ¥50 trillion by 2025. Providing moreeffective and high-quality medical service is demanded moreIn the year ended March 31, 2014, the last year of our previous medium-term

now than ever before. Based on these circumstances, in the

management plan, net sales increased 19.2%, to ¥103,318 million, from the previous

April 2014 revision of dispending fee issues like improving

fiscal year. Ordinary income rose 16.7%, to ¥5,068 million, and net income rose

medical treatment functionality and coordination, enhancing

12.8%, to ¥2,856 million.

in-home medical care, and striving for a comprehensive

We also supported 314 practice start-up projects, an increase of 99 year on year.
In addition to the expansion of composite transactions, such as leases, we showed

regional healthcare system are becoming increasingly
In this way, the healthcare industry is approaching a largeof 7,652 doctors wishing to start-up or transfer practices, for total of 48,430 doctors

turning point. We consider this significant turning point as anin the fiscal year ended March 31, 2014.

opportunity to better contribute to society. One reason we feel

However, as a result of opening 78 new dispensing pharmacies (including thethe Company can accomplish this is the fact that it has

33 from M&A activities) during the fiscal year under review, the year-end number

continued to stay a step ahead of the times throughout itsof pharmacies rose by 76 from the previous year-end, for a total of 493 pharmacies.

history, always considering what society needed and what

Although, we were unfortunately not able to reach our goal of 500 pharmacies

customers desired while acting in accordance with its manage-

during the term of the plan, on April 1, 2014, we opened 10 new pharmacies, forment principal of “good medicine through good management.”
Aiming to achieve our long-term vision, the new medium-term

As a result, we were able to achieve the targets stated in the medium-term manage-

management plan has been formulated based on the theme of

ment plan of cumulative net sales of ¥100 billion and ordinary income of ¥5 billion“Further Challenge—Toward a better society in which people canfor the term of the plan. However, in order to realize the better society Sogo Medical

live with a sense of security—.” Additionally, we have set

wishes to help create, further growth is an absolute necessity. It is imperative to use

medium-term targets and defined priority initiatives to guide us

the limited medical resources we have with maximum efficiency. In order to do so,

on our quest to resolve the issues faced by society, which we will

we are playing an important role. With that in mind, in order to be a company thatdo by further advancing current initiatives and by creating new

can help influence society, we cannot stop at net sales of ¥100 billion. Therefore,

services that meet social needs. Through these efforts, we will

we are making great effort in planning our future growth strategy.

work to build a better society through good medicine, which is
our mission and the very reason for our existence.

Practice Start-Up Support

Number of Pharmacies

Practice start-up support
Doctors wishing to start-up or transfer practices

48,430493

doctors

pharmacies

40,778projects

26,174
16,842

12

SOGO MEDICAL CO., LTD.

287

328

160

2010 /3 11 /3

12 /3

13 /3

14 /3

2010/ 3 11/ 3

Medium-Term Management Plan
(April 2014 -March 2017, three-year total)“Further Challenge”—Toward a better society in which people
can live with a sense of security—
We are striving to build a platform for regional healthcare
networks by leading the industry with our DtoD
(Doctor to Doctor) system and high-value pharmacies.

Main priority initiatives of new medium-term
management plan
1 Undertaking New Businesses• We will provide support for managing and coordinating medical
services ranging from acute medical care to in-home care tohelp build a platform for regional healthcare networks.

2 Improving Existing Businesses• We will provide medical support based around the DtoD system
by constructing ideal health care malls, enhancing support forstarting up practices, improving user services, and expanding
stock-style businesses.
• We will create high-value pharmacies by helping pharmacists
fully utilize their skills to enhance coordination between pharmacies and medical institutions, make medical costs morereasonable, improve in-home medical care services andself-health-care support.

3 Enhancing Corporate Value

366• Acting in accordance with our management principle,
we strive to always be an organization that grows with its
employees and at which employees can take pride in theirwork and feel a sense of purpose.

215
147

120

417

314

32,054

Our main objective is to create a Japanese-style
healthcare system that helps create medical systems
through which patients can receive efficient and highquality medical treatments under a limited national budget.

more promoted matters.

an expansion of 28 new pharmacy openings. We also recorded a year-on-year risea total of 503 pharmacies.

Long-Term Vision“Establish a Japanese healthcare business model”

12/ 3

13/ 3

14/ 3

Annual Report 201413

Business Operations

Growth Strategy

Financial Reports

President’s Message

Priority initiative 1: Undertaking New Businesses

Priority initiative 3: Enhancing Corporate ValueManagement support to major regional medical
institutions, as well as coordination support forother medical institutions, in-home care,and facilities for long-term care.

Strengthening foundation that supports
our growth strategy.
In order to strengthen the foundation that promotes the previously mentioned priority
initiatives, we are taking initiatives with three measures.

In order for doctors to be able to devote themselves to providing good medical

The first is “improving value of human resources,” which is an important managementcare, we will strengthen the capabilities of medical institutions, from the soft aspects,

resource. We will strengthen comprehensive abilities to invigorate employees and help

like human resources and providing information, to the hard aspects, like hospitalthem develop their skills. To do this, we will not only adopt new personnel system, butfacilities and equipment. We will support medical institutions that will be able to

we will also develop plans that tie in with the individual’s ability to grow, such as training

contribute to the regional community.

and positioning personnel in accordance with business strategies, and promoting diversity.

Also, at major regional medical institutions, we will develop relationships with

The second is to “strengthen the consolidated governance system.” As of the fiscal year

regional medical relations offices. By putting our pharmacies’ functions to use,

ended March 31, 2013, Sogo Medical transitioned to a regional-based management system.

we will support institutions and in-home care for elderly people, and other medical

We will make decisions quickly and promote compliance management by revising andinstitutions coordination. Additionally, we will use our DtoD system and ICT tostrengthening our management system.

undertake new businesses that are born out of this coordination.

The third is “improving business efficiency.” In addition to reforming company-wide
operations and reorganizing the company structure, we will make use of ICT to increase
operational efficiency.

Priority initiative 2: Improving Existing Businesses

Raise all aspects of medical practice support
and pharmacy businesses.

Aiming for a better society where people can live with a sense of
security and developing a healthcare network with regional roots

We will implement three measures in our medical practice support business. The
first is proposals for regional communities. Not only do we plan on establishingideal health care malls that community members need, we will also provide
consulting services that meet demand for long-term care and in-home care to
support comprehensive regional care. The second is proposals for medical institutions. By strengthening the management resources, such as human resources,
facilities, finances, and information, we will improve members’ services to exceed
customer expectations. The third is proposals for doctors. In addition to developing
and providing new services to doctors, we will evolve medical practice support andmeet various needs.
We are implementing policies in five different aspects of our pharmacy business.

Conducting management andcoordination support that correspondswith various kinds of medical carefrom acute to in-home.

Sogo Medical Support

Regional Healthcare
Networks

Dispensing
pharmacies

Major regional
hospitals
Hospitals

Residential homes
and facilities forthe elderly

Healthcare malls

First, we will promote in-home medical care in regional communities by cooperating
as a member of medical teams. Second, we will support community members tomanage self-medication by providing employees with specialized education and

In-homecare

Clinics

helping them to acquire knowledge. Third, we will help reduce patients’ medical
fees and national medical expenditures by promoting use of generic drugs. Fourth,
we will raise customer satisfaction by enhancing service through the use of ICT andother means. Finally, we will build effective management foundations to improve thesafety and security of medical care.

14

SOGO MEDICAL CO., LTD.

Annual Report 201415

Business Operations

Growth Strategy

Financial Reports

President’s Message

Long-Term Vision for Management Issues
and Business Measures
Sogo Medical has adopted “Establish a Japanese healthcare business model” as ourlong-term vision. In order to achieve this, we are formulating and implementing
medium-term management plans. Our main objective is to create a Japanese-style
healthcare system that helps create medical systems through which patients canreceive efficient and high-quality medical treatments under a limited national budget.
Now, I would like to explain specifically what kind of schedule we are planning toaccomplish this.

Expanding Medical Practice Support BusinessCommitting to expanding medical practicesupport business to achieve size equal
to pharmacy business.
The healthcare industry is facing a large period of change, especially dispensing
pharmacies. The biennial revisions to dispensing fees and the drug price standard, andthe rise in the consumption tax rate, has created harsh operating conditions. Against
this background, there is only a limited amount of the external operating environment that the pharmacy business can control. Therefore, in order to make themedical practice support business achieve net sales equal to the pharmacy business,

Revenue Growth

we are focusing our attention on expanding the medical practice support business,

Building a net sales composition ratio moresuitable to market size by expanding the sizeof Higashinihon.

which currently accounts for only 30% of net sales.
Specifically, using our DtoD system as a focal point, we will advance the development of health care malls. As we can establish company-managed Sogo Pharmacies
inside these malls, we will be able to design the expansion of our medical practicesupport business, while also expanding our pharmacy business, which is anticipating

At Sogo Medical, we feel the need to create net sales compositions that better reflect

stable earnings going forward.

the proportion of total national medical care expenditure in that region. As a result,
we are planning to aim for 60% of net sales from Higashinihon, 30% from Nishinihon,and 10% from Kyushu.
As of the fiscal year ended March 31, 2014, Higashinihon and Kyushu had approximately the same amount of net sales, however, the market size of Higashinihon islarger. We are focusing our attention on measures that will boost our net sales
composition. In order to do so, we will use our PPI system to further enhance thequality of employees. At the same time, to deal with the issue we saw in the new
medium-term management plan—selection and concentration of management
resources—we will advance personnel redeployment to Higashinihon. Also, we

Toward Achieving Our Long-Term Vision for Our 50th Term
(Fiscal year ending March 31, 2028)

As we approach our 50th anniversary,
we will develop operations in the
Nishinihon and Higashinihon areas inorder to expand our share of the
medical practice support market.

have actively carried out employment in the Greater Tokyo metropolitan area, andMedicalpractice
support50%

Higashinihon
60%

are now implementing post-employment training to reinforce the management principles, and taking measures for early-stage skill enhancement.

By region

By business

Higashinihon
36%

Medicalpractice
support30%

Nishinihon
27%
Kyushu37%

Medicalpractice
support40%

Higashinihon
50%

Nishinihon
30%
Pharmacies
70%

Nishinihon
30%
Pharmacies
60%

Kyushu20%

Kyushu
10%

36th

42th

50th

(Fiscal year ended March 31, 2014)(Fiscal year ending March 31, 2020)(Fiscal year ending March 31, 2028)

Target sales structure
corresponding to market size

16

SOGO MEDICAL CO., LTD.

Pharmacies
50%

Targeted ratio of sales by region 60:30:10,
Targeted ratio of sales by business 50:50

Annual Report 201417

Business Operations

Growth Strategy

Financial Reports

President’s Message

Taking Initiative in Long-Term Care Business

CSR Activities as Healthcare Corporation

Working toward realization of long-term visionby committing to long-term care business.

At Sogo Medical, our business activities-founded on the mission statement to build

At Sogo Medical, we believe that we cannot achieve our company’s vision
without also making efforts in the long-term care business. In addition to the“Midori-no-kaze: Shimoori” facility for long-term care, established in February
2013, we also established in Fukuoka Prefecture the “Midori-no-kaze: Futsukaichi”
in June 2013 and the “Midori-no-kaze: Nagao” in July 2013. Using these facilities
as a model case, we are considering facility development in Tokyo and otherregions going forward.
At the same time, we are not only taking on the tasks presented by the hard aspectsof the long-term care business, but also the soft aspects as well. For example, we arefocusing our efforts on human resource talent acquisition and training in various fields
in order to further enhance the competence level of our employees.

a better society through good medicine—are directly connected to our CSR activities.
Our social mission, supporting good medical care, is connected to the developmentof society and contributes to improving the lives of many people.
With that in mind, to truly be a company that grows with its employees, we promote
work-life balance to our employees. We are making efforts to create a work environment in which employees can devote themselves to their work. We have adopted anumber of systems allowing flexible and shorter working hours, childcare support
systems such as childcare assistance, long-term care leave system, and long-term
income protection insurance.
As part of efforts to promote diversity, we are seeking to increase the promotion of
female employees and recruitment of people with disabilities. We are especially taking
initiatives at our pharmacies, where nearly half of the pharmacists are female, to establish internal systems that match female employees’ life plans, and create a work place
where they can feel comfortable and have an opportunity to grow.

“Midori-no-kaze” Fee-Based Residential Home for Elderly
Various systems are in place at this fee-based residential home for emergency medical treatment, general medical
services, living assistance services, and long-term care insurance services, providing urgent help rapidly and whenneeded, ensuring residents’ peace of mind, 24 hours a day, 365 days a year. We provide a sincere service so that our
residents can live comfortably and peacefully.

Some Final Words
In 2014, Sogo Medical has taken on the theme of eliminating the worries,
dissatisfaction, and insufficiency of customers’ lives in society and the healthcarecommunity. This means that all employees are thinking critically about providing
a valuable service that meets the needs of society, and that customers can be happy.
To get rid of these negatives, we will create an even more intimate relationship with

Overview of “Midori-no-kaze: Shimoori”
Location: Onojo, Fukuoka Prefecture
Fees:
Deposit (paid when entering facility): ¥100,000
Monthly fees (including food): ¥111,930
Rooms: 42 (all single rooms)

Room area: 18.00m2
General requirements when entering: Over 65 andrequiring long-term care

our customers.
Also, we seek to eliminate the negatives within our company as well. We want tobe a company in which our employees can work energetically, and to be a company
where its employees are happy to be working for. We want our employees and theirfamilies to be happy, and with a sense of responsibility and duty, we will continue tomake efforts in our business activities.
With Our Pledge, Mission Statement, and Corporate Credo as the foundation of ourmanagement principles, all of our employees will work as one toward becoming a

Overview of “Midori-no-kaze: Futsukaichi”
Location: Chikushino, Fukuoka Prefecture
Fees:
Deposit (paid when entering facility): ¥100,000
Monthly fees (including food): ¥111,930
Rooms: 48 (all single rooms)

company that is needed by society.

Room area: 18.00m2
General requirements when entering: Over 65
and requiring long-term care

I would like to thank you for your continued support.

Overview of “Midori-no-kaze: Nagao”
Location: Fukuoka, Fukuoka Prefecture
Fees:
Deposit (paid when entering facility): ¥100,000
Monthly fees (including food): ¥106,930
Rooms: 56 (all single rooms)

18

SOGO MEDICAL CO., LTD.

Room area: 15.00m2
General requirements when entering: Over 65 andrequiring long-term care

Annual Report 201419

Business Operations

Growth Strategy

Financial Reports

Segment Information
Higashinihon Office11

Branches, Sales Offices:

Expanding the Number of Dispensing Pharmacies Nationwide

P22

Sapporo Branch

Yokohama Branch

Morioka

Hokuriku

Sales Office

Sales OfficeSendai Branch

MatsumotoKita-Kanto Branch

Sales Office

Saitama Branch

Shizuoka BranchTokyo Branch

Nagoya Branch

Net Sales

Operating Income¥36,700 million

31,747

1,282¥1,289 million

Number of
Dispensing Pharmacies

212

Pharmacies

2013/3

14/3

2013/3508

14/3

Nishinihon Officepharmacies

P26

9Branches, Sales Offices:
Kyoto Satellite Office

Yamaguchi Branch

Osaka Branch

Takamatsu Branch

Kobe Branch

Matsuyama Branch

Okayama Branch

Kochi Sales Office

Hiroshima Branch

Net Sales

As of June 1, 2014

Operating Income¥ 27,390 million

130

15
14/3

2013/3

14/3

23

Kyushu Office8
Oita Branch

Fukuoka Branch

Miyazaki Branch

Nagasaki Branch

Kagoshima Branch

Kumamoto Branch

Okinawa Branch

SOGO MEDICAL CO., LTD.

Net Sales77

5933,249

12

12

21

2

12

2

37
1

4

1
5

22

4

14

11

5

15

20

8

17

29

Operating Income¥ 37,238 million

2

7

21

4

4

19
9

¥2,611 million

2,256(Year ended March 31, 2014)

Composition of
Net Sales
Percentage by region
National Medical
Care Expenditures*
Percentage by region

166* As of June 1, 2014; Figures of branches and agencies

20

6

P30

Kita-Kyushu Branch

Pharmacies164

2013/37

7¥1,324 million

989

Branches:2

1

20,067

Pharmacies25

2013/3

14/3

2013/3

14/3

Kyushu36.8%

Kyushu13%

Nishinihon
27.0%

Nishinihon
28%

Higashinihon
36.2%

Higashinihon
59%* Source: “Overview of Japanese Medical Care Expenditures in Fiscal 2008”, Ministry of Health, Labour and Welfare

Annual Report 201421

Business Operations

Growth Strategy

Financial Reports

Higashinihon Office

Striving to be regional leaders
by increasing the level ofcustomer satisfaction andproviding added-value services

Performancefor the year ended March 2014
Higashinihon
officePractice Start-up/Transfer
Support and Number ofDoctors Registered
Practice start-up support
Practice transfer support
Doctors wishing to start-up or transfer practices

Percentage of
total sales

36.2%

Masatoshi Sadahisa Director, Senior Managing Officer, Higashinihon Office Manager

28,329doctors

23,841

2,825
projects

At the Higashinihon office, with key words such asservice by focusing on the future and having a long-“change,” “challenge,” “communication,” and “added

term perspective that provides a means for continual

value,” our entire staff is focused on taking business

improvement. In addition, we will design the transi-

initiatives to fulfil our social mission. For the fiscaltion from being product oriented to being market

year ending March 31, 2015, the first year of our new

oriented, and we will make proposals to reconsider

medium-term management plan, we aim to grow athe entire business environment.

more suitable market and become regional leaders inour business domains.
Currently, Sogo Medical aims to increase the propor-

22

78

Net Sales
Medical practice support

tion system and management training as needed. As

medical care expenditure in that region, around 60%.

a new initiative, we will conduct activities using our

In order to accomplish this, we have to create apharmacies as “general health stations.” As a base for“strong business” that provides superior levels ofregion-related health information, we plan on giving

customer satisfaction by removing customers’ worries

advice about appropriate use of non-prescription drugs

and dissatisfactions. To truly create satisfied

and health consultations, as well as carrying out thecustomers, every employee should not stop at theprovision of information. We also plan to use our phar-short-sighted notion of dealing only with the most-macies and pharmacists to promote self-medication.
Furthermore, we will aim to become regional leaders

accurately grasp the underlying issues that customers

by accumulating off balance sheet assets through theare truly troubled with, and provide added-value

voluntary actions of our employees.

projects

97

Pharmacies

2012/ 3¥

support, and in-home care, we will commit to humanthat it better reflects the proportion of total national

152

1,620

such as new health care malls, total management
resource development with our PPI internal certifica-

SOGO MEDICAL CO., LTD.

2,078

Moreover, in addition to pursing new challenges

tion of its total sales in the Higashinihon region so

obvious concerns of customers. Employees should

18,552

13/3

14/ 3

36,700 million

31,747

Number of Pharmacies

28,223

Existing

Newly opened

206¥26,522
millionpharmacies

23,601
20,601

152

35

173
21

pharmacies

23

7,621

2012/ 3

¥10,177
million

8,145

13/ 3

14/ 3

129

2012/ 3

171

152

13/3

pharmacies

14/ 3

Annual Report 201423

Business Operations

Growth Strategy

Financial Reports

Higashinihon Office

On the Scene:
Report1

Otaka Hospital(Adachi, Tokyo)

On the Scene:
Report2

Shibokuchi Clinic Mall
(Kawasaki, Kanagawa)Eliminating the worries of patientsand their families

Meeting needs of the community
through our health care malls

Otaka Hospital was established in October 2013. Being a hospital that conducts

At Sogo Medical, we are striving to build a platform for regional healthcare

emergency medical care, Otaka Hospital is making deep contributions to regional

networks. As part of that mission, we established Shibokuchi Clinic Mall, a

medical care through undertaking home-visit medical examinations and nursing

health care mall in a region with high medical care needs. In the following,care initiatives. In the following, we would like to introduce the characteristics of

we would like to introduce this clinic, a clinic in which we provided start-up

this hospital and its contributions to regional medical care.

support for.

Overview of Shibokuchi Clinic Mall

Voice from Our Employees
Contributing to regional medical care through emergency medical care
Otaka Hospital was founded with the purpose of providing easily
accessible primary emergency medical care, from admitting patients withcomplications from mental disorders, such as dementia (a case in which it
may be difficult to find a hospital to transport the patient to by ambulance),
to seeing patients who can come to the hospital on their own. From thehospital’s beginning, Sogo Medical provided support in various ways, from
helping with negotiations with the local government, deciding on businessplans, etc. Sogo Medical’s help made the start-up process worry free.
Among our patients, there are those who are elderly and those who haveaftereffect from serious diseases. Therefore, there is a need for the provisionof continuous care after emergency medical care is initially administered.
To that end, Otaka Hospital also carries out home visits to patients in thesurrounding area.
As of April 2014, we are making efforts to establish a structure for the future, from opening
home-visit nursing care stations to being a hospitalthat can provide continuous medical care to the
local community.

Masafumi Kano Higashinihon OfficeStarting up a hospital requires more
capital than starting up a clinic. Therefore,
when supporting Otaka Hospital’s start-up,
business plans that took funding into
consideration were of particular interest.

Aspiring to be the town doctor from days of old
At our clinic, in addition to internal medicine that deals with diabetes aswell as, digestive and cardiovascular organs, we are also taking strides in
in-home care. I specialize in gastrointestinal medicine, but for our patients,
illness does not just affect only the digestive organs, therefore, we want tosupport our patients as much as possible with the many ailments thattrouble them. We prescribe Chinese herbal Kampo medicines and evenintroduce our patients to other hospitals, much like the town doctors fromthe days of old.
In our in-home care services, it is important to provide medical treatmentthat not only understands the difficulty the patient is having, but also thedifficulty the patient’s family is having as well. Therefore, the objective at
our clinic is to arrange necessary administrative services, and provide thenecessary help patients and their families need.

Shibokuchi Clinic Mall, located in Kawasaki,
Kanagawa Prefecture, opened in June 2012as an internal medicine and pediatric clinic.
Due to the lack of healthcare facilities in thearea, this convenient health care mall was
welcomed by the community. In addition,an orthopedic surgery clinic is planned toopen in June 2014.
The Shibokuchi Sogo Pharamcy, which
was jointly established inside the clinic, notonly provides prescription medicine fromthe clinic, but also with cooperation from
Shimamura Clinic, carries out in-home
visits. This clinic values communication
with the patients, and as a member of the

Our support, however, does not finish withhealthcare team, this clinic contributes tothe opening of the hospital. We also provide

the provision of high-quality medical carefollow-up support regularly, and we will

for the local community.

continue to conduct mid- to long-term
support for the medical care that Dr.Otaka
aims to provide, in the years to come.

Operating room

I believe that satisfying the customer

A sea turtle is the symbolof our clinic, to represent
a long life

through this kind of start-up support is themission for all employees at Sogo Medical,
and actually the very reason that Sogo Medical
exists. I will continue to make efforts to fulfill
our mission in the years to come.

Waiting room

Hospital room

Yuichi Otaka Otaka Hospital Director
24

SOGO MEDICAL CO., LTD.

Takeshi Shimamura Shimamura Clinic Director
Annual Report 201425

Business Operations

Growth Strategy

Financial Reports

Nishinihon OfficeBecoming regional leaders
through strong teamwork andelimination of negatives both
inside and outside the company

Performancefor the year ended March 2014
Practice Start-up/Transfer
Support and Number ofDoctors Registered
Practice start-up support
Practice transfer support
Doctors wishing to start-up or transfer practices

Percentage of
total sales

Takao Nakashima Director, Executive Managing Officer, Nishinihon Office, Manager

27.0%

12,363doctors

10,229In the fiscal year ended March 31, 2014, the Nishinihon

the development of health care malls, which provide

office took on the challenge of redefining itself froma variety of services like medical care, long-term

an organization with an overly defensive stance to one

care, and healthcare service that meet the needs

with a more offensive stance by leveraging the DtoDof the region.

system and Sogo Pharmacies with the goal of becoming
regional leaders.
In the medical practice support division, we

In the pharmacy division, we are setting a goal forthe balance sheet through initiatives such as increasing

self-medication and primary care support, we will

projects like health care malls. In the pharmacy

actively promote generic pharmaceuticals and advo-

division, thanks to new pharmacy openings and thecate further participation in plans for in-home care.

increase of business associates to Sogo Medical, theIn doing so, we will continue our support for thenumber of pharmacies expanded substantially.

health of the local community, while becoming atake on the challenge of further improving teamwork

42

Medical practice support

As for human resource development, we are continuing
our efforts to thoroughly spread understanding of Our

tives,” such as customers’ worries, dissatisfaction,

Pledge, Mission Statement, and Corporate Credo among

insufficiency, discomfort, and inconvenience withall employees, and we are training the kind of employees

society and the medical community, as our theme.

who can alleviate customer uneasiness and dissatisfaction.

1,352
projects

106

projects

63

Pharmacies

2012/ 3

13/3

14/ 3

27,390 million¥

Number of Pharmacies
Existing

20,067
18,664

Newly opened¥17,526
million127

pharmacies

32

pharmacy that can contribute to healthcare financing.

throughout the office. We chose “eliminating the nega-

In our medical practice support division, we will

Net Sales

which will be a base for disseminating health-related
information in the region. Specifically, starting with

1,632

7,678
902

our pharmacies to become “general health stations,”

continued to accumulate assets that do not appear on

In the fiscal year ending March 31, 2015, we will

Nishinihon office

12,625pharmacies

13,72595
75¥9,863
million

6,038

20
7
95

68

75

pharmacies

6,341

We will also enhance teamwork so that eachfocus our efforts on support for practice start-ups

employee can improve by learning from those aroundand support for finding successors to existing prac-

them. The Nishinihon office will unite as one in ourtices. We will also increase other means of support

aim to become regional leaders.

2012/ 3

13/ 3

14/ 3

2012/ 3

13/3

14/3

like facility leasing, while also actively promoting

26

SOGO MEDICAL CO., LTD.

Annual Report 201427

Business Operations

Growth Strategy

Financial Reports

Nishinihon Office

On the Scene:
Report1

Higashihara Orthopedic
Rheumatology Clinic(Sennan, Osaka)

On the Scene:
Report2

K’s HAT Kobe Medical Mall
(Kobe, Hyogo)

Promoting physical and mental healthfor even more patients

Striving for enhancement of ourhealthcare network

The Higashihara Orthopedic Rheumatology Clinic was opened in September

K’s HAT Kobe Medical Mall was founded with the hopes of enhancing a close-to-2013. Since its founding, this clinic has taken initiatives to be the “regional

home healthcare network. In the following, we will introduce Kamo Dermatology,

family doctor,” to ensure that patients from the regional community can live

one clinic inside this mall, which is composed of six different clinics and thewith a sense of security, both physically and mentally. In the following, we

Sogo Pharmacy HAT Kobe.

would like to introduce how this clinic came into practice.

Sogo Pharmacy HAT Kobe
Offering assistance from start-up to follow up
Practice start-up support for the Higashihara Orthopedic
Rheumatology Clinic started from the introduction of
Dr. Higashihara to Sogo Medical by a business partner.
At that time, Mr. Nishijima, the Kobe branch manager,
was in charge of the project, but due to personnel transfers, I took on the project in cooperation with the realestate, design, construction, and pharmacy divisions.
In this project, a particular point of concern was
deciding on where to build the clinic. Under the requestof Dr. Higashihara, we cooperated with our business
partners and collected information on various locations.
Thanks to this, we were able to propose an optimal location for building, which was only a five-minute walk fromthe nearby train station.
Of course, starting the practice was only the beginning.
We are regularly communicating with the clinic, and weare continuing to support the medical treatment that Dr.
Higashihara is aiming to provide.

With the success of this practice start-up support
project, we are receiving introductions to other doctors
hoping to start their own practices, and the Nishinihon
office and the Osaka branch are uniting as one to takeon future practice start-up support projects.
Putting “good medicine through good management”
into practice, without forgetting the importance
When starting a new practice, there are various hurdles
a doctor must clear, due to the fact that they have yet toexperience the lifestyle of a hospital doctor. For myself,
I must never forget the important role the help we
provide plays for those doctors who have made thisonce-in-a-lifetime decision. By acquiring further knowledge and experience, I will continue efforts to meet theneeds of the doctors we support, and to fulfill Sogo
Medical’s mission and reason for existence, “to build
a better society through good medicine.”

Implementing extensive medical treatment and meticulous
patient correspondence
At the time of this clinic’s opening, Sogo Medical provided focused
assistance with the selection of the proposed site. Now, after five years
from opening our practice, due to the fact that we have a broad age-rangeof patients—from children to the elderly, with various conditions—we areconducting a vast range of medical treatments such as surgery and outpatient care. Also, keeping meticulous correspondence in mind, I personally
test the medications we prescribe to patients to verify the sensations oftaking or applying the medication.
From the perspective of regional healthcare, we want to capitalize on theadvantages the health care mall provides going forward. Combined study
meetings are regularly held between the clinics inside the mall and Sogo
Pharmacy HAT Kobe. Therefore, we are able to share beneficial
information, make advancements in new medical
information, and observe the trends of patientsfrom each clinic.

Toshihide Ishioka

Rie Matsuo

Pharmacist

Pharmacist

A health care mall has the great advantage
of allowing patients to be able to havemedical treatment from multiple clinics
smoothly, all within the same building.
To provide this advantage, cooperation
between the clinic directors is a necessity.
With the purpose of deepening thiscooperation, the jointly established Sogo
Medical HAT Kobe carries out regularmeetings with the clinic directors every
three months. Also, at our pharmacy, we
have nutrition consultations from nationally

Entrance

registered nutritionists in order to create aspace where patients, even those without
previous illnesses, can have a casualconsultation about their health. In doing
so, we are further contributing to regional
healthcare.

Waiting room

Takaya Fujimoto Osaka Branch
28

SOGO MEDICAL CO., LTD.

Rehabilitation room

Operating room

Tsuneyoshi Kamo Kamo Dermatology Clinic Director
Annual Report 201429

Business Operations

Growth Strategy

Financial Reports

Kyushu Office

Aiming for further growth under“improving ourselves, enhancing
productivity, and satisfying ourcustomers” theme

Performancefor the year ended March 2014
Practice Start-up/Transfer
Support and Numberof Doctors Registered

Kyushu office

Practice start-up support
Practice transfer support
Doctors wishing to start-up or transfer practices

Percentage of
total sales

Joji Haraguchi Director, Senior Managing Officer, Kyushu Office Manager

36.8%

6,412
doctors

5,409

Based in the founding location for Sogo Medical, theour pharmacies, and by enhancing regional office

Kyushu Office has considerable resources built up

functions, we made strides in establishing a base forover 36 years of operations. In the fiscal year ended

becoming regional healthcare leaders.

March 31, 2014, resources like our practice start-up

The fiscal year ending March 31, 2015, marks the

support, our succeed members*, and our locations forstart of our current medium-term management plan.

consulting helped us strengthen the relationship andWe will return to our origins by adopting “improving

deepen the bonds of trust with existing customers,

ourselves, enhancing productivity, and satisfying ourwhich led to meeting new customers.

customers” as our theme. To accomplish the tasks set

Specifically, we worked actively on a variety of proj-

in our theme, it is necessary to be able to remove theects such as facility leasing and support for finding

negatives, such as worries, dissatisfaction, insufficiency,

successors to practices, as well as projects relating todiscomfort, and inconvenience, in the lives of ourour pharmacies and health care malls.

customers. Our employees will polish their talents andAlso, to accomplish our goals, we once again
pursued ways to improve work efficiency and productivity. We made diligent efforts in human resource

To achieve the goals stated in our medium-term

development by having our employees polish their

management plan, our entire office will combine ourtalents and skills, in order to analyze and solve prob-

efforts to aim for further growth.

lems in the workplace.

* “Succeed Members” is a membership system through which we provide business information related to private practice.

In addition, by strengthening cooperation between
the head office, our regional offices and branches, and479

Medical practice support

2012/ 3SOGO MEDICAL CO., LTD.

56

projects

13/3

14/ 3

37,238 million

33,249Number of Pharmacies
Existing

Newly opened¥ 28,087
million25,766

26,065
139
10

129
6,243
2012/ 330

55

Pharmacies¥

32,010569

40

Net Sales

skills even further toward accomplishing our purpose
made clear by our theme.

889

projects

4,259

137

160 pharmacies
11

pharmacies

149

pharmacies¥ 9,150
million

7,184
13/ 3

149
12

14/ 3

2012/ 3

13/3

14/3

Annual Report 201431

Business Operations

Growth Strategy

Financial Reports

Kyushu Office

On the Scene:
Report1

Susenji Medical Mall
(Fukuoka, Fukuoka)

On the Scene:
Report2

Iwasaki Orthopedic Clinic(Fukuoka, Fukuoka)

Building community for peaceful living

Practice Succession: Attracting attention
as an option for starting a practiceThe Susenji Medical Mall is composed of a variety of clinics, from internal

Currently, medical practice succession is being viewed as one option when starting

medicine and pediatrics to orthopedics, and is also home to our Sogo Pharmacy

a practice. Doctors who want to turn over their practice are having trouble due toSusenji. In the following, we would like to introduce this mall, which contributes

the lack of successors in recent years. Therefore, cases where practices are passed

to improving patient convenience in order to make a community where people

along through the help of a third party are increasing. In the following we would

can live with a sense of security.

like to introduce the director of Iwasaki Orthopedic Clinic, Dr. Iwasaki, who inherited his clinic from the former director of the Matoba Orthopedic Clinic, Dr. Matoba.

Aiming to create base for regional healthcare network
At Susenji Medical Mall, we established an internal
medicine practice in April 2008, a pediatrics practice in
September of the same year, and we opened an orthopedics practice in December 2011.
Upon opening this mall, rather than just concerning
ourselves with the joint establishment of the Sogo Pharmacy Susenji, we took great consideration into thearrangement of the mall’s interior, to ensure that eachclinic was easy for the community members to find.
We also gave forethought into making a uniform
appearance to all of the clinics and the pharmacy
to create a sense of unity so that the facility could
be recognized as a true health care mall. At the Sogo

Pharmacy Susenji, we conduct periodic study and information exchange meetings. With the cooperation ofeach clinic, we are establishing a structure for thefrequent exchange of information, in order to provide
the best care for our patients.
I personally pay periodic visits to this mall to aid inproblem solving and to give support to the medical carethat the doctors of these clinics aim to provide. In thesix years since this mall’s establishment, the level of
local recognition has rose, and there has been a favorable
transition in the number of patients. In order to build aplatform for regional healthcare networks, I would liketo further promote the development of health care malls,
and I want to help in making an environment where thelocal community can live with a sense of security.

Inheriting a practice in an ideal location
What made me decide to start my own practice was thefact that I wanted to have a deeper involvement with mypatients, and I wanted to take more time to properly treat
them. When I made the decision to do so, I consideredboth the options of starting a new practice or inheriting
an existing one. But taking into account my personal
finances at the time, I made the decision to inherit anexisting practice. I communicated my requirements to arepresentative at Sogo Medical, and began start-up preparations. Then, through an introduction by Sogo Medical, I
met with Dr. Matoba, who was thinking about transferring his clinic. Dr. Matoba greatly understood the kind of
medical treatment I wanted to provide, and since his
clinic was in an ideal location, I took the honor of inheriting his clinic.

Support with scrupulous care
The preparations for opening my practice went on fornearly two years. Thanks to the help from the Sogo
Medical representative, the procedures related to starting
up a practice went smoothly. After leaving the hospital I
previously worked at, I spent one year working at anotherhospital. Sogo Medical helped set up those arrangements,
which was a tremendous help at that time.
Even now, Sogo Medical is providing regular followup support. A short while after opening my practice,
Sogo Medical carried out a patient survey. Thanks to thissurvey, I found out several ways to improve my practicethat I hadn’t thought of before. This was tremendously
beneficial to me. I am extremely thankful to Sogo Medical
for taking such initiatives, and the partnership I have with
Sogo Medical is very reassuring to me.

Reception

Rehabilitation room

Sogo Pharmacy Susenji

Mai Higashi Fukuoka Branch
32

SOGO MEDICAL CO., LTD.

Toshihiro Iwasaki Iwasaki Orthopedic Clinic Director
Annual Report 201433

Business Operations

Growth Strategy

Financial Reports

CSR for the Sogo Medical GroupThe Sogo Medical Group’s corporate social responsibility (CSR) initiatives comprisefour principal elements.

Further Challenge: Making an organization that employees can take pride in
their work and a feel a sense of purpose
One of the priority initiatives of our current medium-term

In the same month, we also introduced a new personnel

1 We shall understand and share our management principles and fulfill the corporate mission through our work.

management plan is to “grow with our employees, fostering

IT system. By gathering, analyzing, and applying in-house

2 We shall provide services that surpass customer expectations.

a corporate atmosphere that allows the free expression ofhuman resources information, we will design the establish-

3 We shall create an environment in which employees feel secure and derive fulfillment in their work.

opinions, and become a company that meets the needs ofment of job training, appointment, and rotation. In doing

regional communities.” From fiscal 2011, we undertook theso, we will create a structure that enables Sogo Medical totask of reconstructing our personnel systems. Specifically, wegrow with its employees.

4 As a member of society, we shall respect compliance and earn the trust of customers and other people.
The Sogo Medical Group’s CSR activities are the same as its business activities, to build a better society through good medicine.
Our job is to support good medical care, and that is connected to the development of society and improving the livesof many people. Through supporting good medical care in the future, we aim to fulfill our social mission as a company.

have gradually introduced various human resource develop-

With this new personnel system as our foundation, we

ment systems (grading, evaluation, reward systems, andwill continue the challenge of “making an organization thathuman cultivation), and as of April 2014, we had put these

employees can take pride in their work and a feel a sense

systems into full-scale implementation.

of purpose.”

Our Perspective on Human Resource Cultivation
Our Approach toward and Stance on ComplianceStandards of Behavior

Meet the responsibilities
required by society

Fulfill our
responsibilities
as a company

for all our training. From new employees to directors, ourongoing basis, we have introduced a training program that isfounder personally communicates our corporate philosophy

The Pledge of theSogo Medical Group

designed for employee growth and implemented as appro-and corporate ideals through Our Pledge and the Company

priate to each employee’s position. Our overall training is

Credo. These are instilled into each individual through our

In accordance with Our Pledge and thedivided into hierarchical, executive cultivation, and othervarious types of training, enabling us to realize the type ofCompany Credo, the officers andprograms, but our management principles form the bedrock

human resources we require.

employees of the Sogo Medical Groupvow to respect all laws, regulations, andOur compliance

Generalcompliance

To promote OJT and cultivate human resources on aninternal rules and fulfill the Group’ssocial responsibility as a good corporate

Ethical practice

citizen conducting a life of high value.

Compliance is generally thought of in the sense of “regulatorythat form the background for these laws. We endeavor to becompliance,” or conforming with laws and internal regula-a company that delivers essential value to all people. As

tions. However, we undertake compliance in a broader

such, we remain sensitive to changes in society, considering

sense. In addition to complying with laws, we consider

individually what society requires and following throughcompliance to mean acting in an ethical manner andwith actions to satisfy these needs.

eschewing any activity that would inconvenience society

For our employees, compliance does not simply mean

as we strive aggressively to meet society’s expectations.

“do not do bad things.” Rather, they see compliance as a

Our compliance goes beyond obeying the letter of themeans for making a better society, a better company, andlaw, and our actions extend to a respect for the social norms

SOGO MEDICAL CO., LTD.

Self-development
programs

The Sogo Medical Group’s Perspective on Compliance

Screening
programs

Occupation-specificprograms

Our Pledge, Mission Statement, Corporate Credo

Executive
cultivation
programs

Theme-specificprograms

Hierarchical programs

Regulatory compliance(compliance in a narrow sense)

34

Training Structure

Our Pledge, Mission Statement, Corporate Credo

better lives for all.

Annual Report 201435

Business Operations

Growth Strategy

Financial Reports

Corporate Governance
Basic Policy

Governance Systems (As of June 20, 2014)

Sogo Medical considers one of its most important issues

stakeholders, at the same time as enhancing corporate gover-facing management to be recognizing the importance ofnance by strengthening, improving, and implementing

corporate ethics based on legal compliance, while alsofunctional systems required by law, including the generalmaking prompt decisions in response to the ever-changing

meeting of shareholders, board of directors, audit & supervi-business environment and working to make management

sory board, and independent external auditors.

sounder in order to record continued corporate value. To

We also aim to increase management transparency byachieve that, it is necessary to build good relationships with

providing fast, accurate, and wide-ranging information disclo-customers, clients, local communities, employees, and othersure to all our shareholders and investors.

General Meeting of Shareholders

system in which officers selected by the board of directors

emphasizing mobility.

appointed performs the executive and the board of directors

Sogo Medical has adopted an audit & supervisory board

Directors

The Company also holds regular new employee training

an external auditor allows for the effective monitoring

and gradable training through the year as well as working toof management.

improve compliance with workplace training on the subject

rule with decisions made about important company matters.
Managing directors’ meetings attended by full-time direc-

Audit & Supervisory
Board Members

Corporate Auditor Division

4 members (3 external auditors)

Financial Audit

Independent External Auditors(Mutual Coordination)

Corporate Auditing Division

Financial Audit

ReportPresident & Representative Director

Corporate Executive Officers

Internal Control DivisionInternal Control
Internal Auditing

Divisionsof corporate ethics and compliance management given bystaff responsible for promoting compliance.
Sogo Medical declares the following basic policy, “We dotors are held twice a month as a general rule with decisions

not involve ourselves with anti-social forces or client compa-

about which matters to discuss at board of directors’ meetings

nies who have a relationship with anti-social forces, under

and about important matters that are not decided at board

any circumstances.”

Request Advice /Report Information

Helpdesk

ReportCorporate Ethics Helpline

5 Sogo Medical employees
3 outside lawyers

Officer Remuneration

meetings. Management meetings and individual item meet-

For the purpose of removing anti-social forces, together

ings attended by full-time directors (excluding the senior

with the cooperation of outside expert organizations such

advisor and vice chairman) are held once a month, respec-

as lawyers and relevant administrative bodies, we will create

Although Sogo Medical has no specific policies regarding

The president decides remuneration for directors after

a corresponding structure.

the amount of remuneration for officers, or the method for

consulting with the board of directors and compensation

to discuss at managing directors’ meetings and discussion andcalculating that amount, shareholders monitor remuneration

for auditors is decided after discussion among auditors, ininformation exchange about various management issues.

through a limit to the total amount of remuneration forboth cases within the limits decided at the general meeting

directors and auditors (including bonuses) decidedof shareholders.

tively, as a general rule with deliberation about which mattersthrough resolutions at a General Meeting of Shareholders.

Auditing System (As of June 20, 2014)
Audit & supervisory board comprises four auditors, of which

reporting the results directly to the president. Audited depart-two are standing auditors and three are external auditors toments are given guidance on where they need to improve,ensure fairness and transparency. Each auditor attends board

with further reporting required on whether improvement hasof directors’ meetings, while standing auditors also attend andoffer opinions at managing directors’ meetings, management
meetings, and individual item meetings.
Auditors monitor the legality of operations based on financial standards, audit planning, and task divisions.
Internal audits are held systematically by the audit department, consisting of 11 members, auditing all departments and

36

Audit

Selection / Dismissal

has directed this.

system with a board of auditors and believes including

Board of directors’ meetings are held every month as a general

Audit &
Supervisory
Board

Selection / Dismissal /Supervision

one is an outside director, reflecting the company’s size while

Board ofDirectors

Selection / Dismissal /Supervision

Sogo Medical has adopted a corporate executive officer

Selection / Dismissal

12 members(1 external director)

Corporate Governance System (As of June 20, 2014)
The board of directors is made up of 12 members, of which

Selection / Dismissal

SOGO MEDICAL CO., LTD.

Total Remuneration of Each Category of Officers in Fiscal 2013
Officer category

been made or not, ensuring an efficient audit process.
Collectively, audit & supervisory board member, auditing
division, independent external auditors, and internal control
division exchange information as required regarding audit
planning and audit results, working to achieve efficient andeffective audits.

Directors

Total by form of remuneration

Number ofrecipients(Millions of Yen)

Basic
compensation

Stock
options

Bonuses

Retirementcompensation

13

238

238

–

–

–

(not including external auditors)

1

9

9

–

–

–

Outside officers

6

18

16

–

–

1

Total

20

265

263

–

–

1

(not including external directors)

Audit & supervisoryboard members

Notes:
1. The total remuneration for directors does not include employee
salaries for those directors who are also employed as employees.
2. Remuneration for Sogo Medical officers only includes the amount
paid by Sogo Medical, excluding payments from subsidiaries.
3. No Sogo Medical officer receives a consolidated salary of morethan ¥100 million.
4. Annual remuneration for directors (not including employee salaries
for people who are both directors and employees) was given a firm
limit of ¥300 million with a limit to increases of 2% of the previous
fiscal year’s consolidated net income in a resolution at the 34th
General Meeting of Shareholders held on June 20, 2012.
5. Annual compensation for audit & supervisory board members waslimited to ¥50 million in a resolution at the 24th General Meeting of
Shareholders held on June 18, 2002.

Annual Report 201437

Business Operations

Growth Strategy

Financial Reports

Directors, Audit & Supervisory Board Members
and Corporate Executive Officers (As of June 20, 2014)

Corporate GovernanceInternal Control System and Compliance System
Sogo Medical is striving to build up its compliance systemby establishing a corporate charter and a code of ethics.
In order for directors and employees to perform theirduties with corporate social responsibility and corporate
ethics in mind, we put our corporate policy (Sogo Medical
action standards) into practice, while making the policy
thoroughly understood and enforced. In order for directors
and employees to perform their duties in accordance withthe law and the articles of association, we have placeda director in charge of compliance (legal department
management officer) as well as formed an internal
control committee, which is managed by the compliancedivision (according to policies of dividing duties). We
have also set up a help desk (corporate ethics helpline),
which employees can contact with requests for advice orto report information and get a speedy response. In orderto enhance compliance knowledge among directors andemployees, we are upgrading director and employee
training, as part of our efforts to improve knowledgeof respecting compliance.

Information Management System
Sogo Medical has a system in place for storing andmanaging information related to work duties. Based on
the law and its own internal regulations, directors makeand keep the minutes of Board meetings and otherinformation related to important work duties as well as

the decisions made, which are collectively recorded andmanaged appropriately. We have also establisheddocument management regulations for directors’decisions and reports, based on which we store andmanage this information. The management of informationis conducted appropriately based on our regulations for
information management and our information systemmanagement regulations.

Risk Management System
We have installed a function in the compliance divisionthat supervises risk management and placed a director in
charge of it. In order to establish fundamental policy andpromotion systems for risk management, we havedetermined risk management regulations, and constructed
and operated risk management systems. The compliancedivision evaluates the effectiveness of the establishment
and operations of risk management. In the case a problem
is seen, the division provides recommendations for
improvement to the respective departments to enhance
effective monitoring.
Also, to make precise response guidelines for theoccasion a crisis occurs, we have determined standard
crisis management regulations, created a business
continuity plan and a disaster prevention manual, and arepreparing a system that allows accurate response in timesof emergency.

Comments from the External Audit & Supervisory Board Member

Kiyotaka Watanabe
Auditor38

SOGO MEDICAL CO., LTD.

A whole year has passed since I was appointed as Sogo Medical’s external auditor. With the senseof purpose that comes from Sogo Medical’s Mission, “good medicine through good management,”
Sogo Medical is taking initiatives in healthcare businesses.
I always attend the regularly held meetings of the Board of Directors and Audit & Supervisory Board.
I am proactive in stating my personal opinions, and I confirm that corporate governance and complianceare thoroughly enforced, and that the management principles, which are based on the founding pledge,
mission statement, and corporate credo, are permeated throughout to all company employees.
Sogo Medical is taking on new and bold challenges. Simply conducting business as usual cannot becalled a challenge. As a new solution provider to the healthcare industry, who are propelled with a senseof purpose, I am anticipating brave new ideas and challenges from Sogo Medical. When it comes to thecompany name Sogo Medical, I would like to see the further application of the “Sogo” part (whichmeans comprehensive in Japanese), and I would like to see global development in the “medical” part ofit. From the position of external auditor, it is my intention to actively make observations, proposals, andrecommendations, for the enhancement of Sogo Medical’s corporate value.

Board of Directors

Itsuo Tashiro

Kenji Sakamoto

President & Representative
Director

Executive Vice President &Representative Director

Shinya Mikita

Takao Nakashima

Makoto Kuroda

Director & Senior Executive
Managing Officer

Director & Executive
Managing Officer

Director & Executive
Managing Officer

Takahide Terada

Masatoshi Sadahisa

Joji Haraguchi

Moritaka Nakashima

Director & Senior Managing
Officer

Director & Senior Managing
Officer

Director & Senior Managing
Officer

Director & Senior Managing
Officer

Hirosada Oyamada

Kentaro Kannou

Makoto Nogami

Senior Advisor & Director

Vice Chairman & Director

Director

Annual Report 201439

Business Operations

Directors, Audit & Supervisory Board Members and Corporate Executive Officers

Audit & Supervisory Board Members

Shoji Hirao

Kiyotaka Watanabe

Naomasa Mitsukado

Standing Auditor

Standing Auditor

Auditor

AuditorCorporate Executive Officers

Financial Reports

Five-Year Summary of Consolidated Financial Statements

Years Ended March 31

Minoru Ohno

Growth Strategy

2010

2011

2012

2013

2014

Net sales(¥ million)

70,42772,78980,22286,658103,318

Operating income(¥ million)

3,268

4,148

4,848

4,324

5,014

Ordinary income(¥ million)

3,297

4,212

4,881

4,343

5,068

Net income(¥ million)

1,541

2,167

2,504

2,532

2,856

Total net assets(¥ million)

15,932

17,421

19,511

21,63623,934

Total assets(¥ million)

36,27343,05753,16057,13866,982

Net assets per share(yen)

2,170.05

2,413.16

2,702.78

2,993.28

3,311.46

Net income per share(yen)

210.70299.33346.93350.81395.64

Cash dividends per share

(yen)

50.00

60.00

70.00

80.00

80.00

(Includes interim dividend)(yen)(25.00)(30.00)(35.00)(40.00)(40.00)

Dividend payout ratio

(%)

23.7

20.0

20.2

22.8

20.2

Capital adequacy ratio

(%)

43.3

40.5

36.7

37.8

35.7

Net income to shareholders’equity ratio

(%)

10.0

13.1

13.6

12.3

12.6

Price-earnings ratio(times)

9.8

7.3

8.6

9.5

10.5

Price-to-book-ratio(times)

0.9

0.9

1.1

1.1

1.2

of shares)

7,670

7,670

7,670

7,670

7,670

Cash flows from operating activities (¥ million)

3,237

4,179

4,484

7,269

7,461

Cash flows from investing activities(¥ million)(1,535)(4,111)(4,086)(3,380)(5,335)

Cash flows from financing activities(¥ million)(158)(1,275)(170)(2,777)(1,370)Cash and cash equivalents at
end of period(¥ million)

4,963

3,756

3,984

5,095

5,851

Number of regular employees(people)

1,914

2,097

2,195

2,508

2,650

Number of part-time employees(people)

546

602

623

735

1,064

(thousandShinya Mikita

Takao Nakashima

Makoto Kuroda

Kohichi Hashimoto

Senior Executive Managing
Officer

Executive Managing Officer

Executive Managing Officer

Executive Managing Officer

Takahide Terada

Masatoshi Sadahisa

Senior Managing Officer

Senior Managing Officer

Joji Haraguchi
Senior Managing Officer

Moritaka Nakashima
Senior Managing Officer

Number of shares outstanding

Note: The number of regular and part-time employees indicates the average number of people employed during the year (excluding members of the Sogo Medical Group dispatchedoutside the Group and including personnel dispatched from outside the Group to the Sogo Medical Group). Part-time employees indicates people working part-time, contract
employees, and dispatched personnel.

Genichi Shimmura

Kazuya Watabe

Yuriko Tanigawa

Senior Managing Officer

Senior Managing Officer

Senior Managing Officer

Takamichi Okuno

Nobuo Fujii

Toshikazu Matsuo

Osamu Yamasaki

Managing Officer

Managing Officer

Managing Officer

Managing Officer

Masatomo Hara

Shigeyuki Nakano

Katsuyuki Honda

Akihiro Shitozawa

Managing Officer

Managing Officer

Managing Officer

Managing Officer

Other Financial Data (Consolidated)
Years Ended March 31

Operating income to net sales ratio
Ordinary income to net sales ratio
Net income to net sales ratio
Total assets turnover
Return on assets
Current ratio
Fixed assets to capitalization
Interest-bearing debt ratio
Net debt-to-equity ratio

(%)
(%)
(%)
(times)
(%)
(%)
(%)
(%)
(times)

2010

2011

2012

2013

2014

4.6
4.7
2.2
1.9
10.0
143.7
64.2
14.2
0.1

5.7
5.8
3.0
1.7
10.6
129.6
77.1
19.4
0.3

6.0
6.1
3.1
1.5
10.2
131.7
78.1
27.4
0.5

5.0
5.0
2.9
1.5
7.9
128.8
80.0
25.1
0.4

4.9
4.9
2.8
1.5
8.2
122.0
81.7
23.2
0.4

Notes: 1. Interest-bearing debt includes lease obligations and installment purchase accounts payable that are included in the consolidated balance sheet.
2. Method of calculating the net debt-to-equity ratio: (Interest-bearing debt – cash and deposits)/shareholders’ equity

PB
40

SOGO MEDICAL CO., LTD.

Annual Report 201441

Business Operations

Growth Strategy

Financial Reports

Management’s Discussion and Analysis

1. Operation Results
Overview of Performance During the Year
During the fiscal year under review, the year ended March
31, 2014, net sales rose 19.2% year on year, to ¥103,318
million, due to the increase in new openings in the pharmacy division, and a rise in sales in the leasing/installment
division. In profits, operating income rose 16.0%, to ¥5,014
million, ordinary income rose 16.7%, to ¥5,068 million, andnet income for the year rose 12.8%, to ¥2,856 million.
Our medium-term management plan to “Grow as an
attractive company through leveraging our DtoD system andcreating high-value pharmacies,” which spanned three years,
started in April 2011. We continued to strive to build a basefrom which we can become the leader in all our businessdomains. To achieve this, we bolstered practice start-up
support and expanded high-value pharmacies. Additionally,
we enhanced our human resources through practice process
innovation (PPI) systems for practice start-up support,
personnel introduction, and pharmacies management.
In practice start-up support, we conducted 314 projects, 99
projects more than in the previous fiscal year. This included
support for doctors who planned to retire their practices
through introduction of doctors who wish to start-up theirown practices and support for new practices in health caremalls. These projects have led to new lease contracts and 28
new openings of pharmacies. The number of registereddoctors who wish to transfer or start-up practices was 48,430
as of March 31, 2014, an increase of 7,652 compared toMarch 31, 2013. We opened 78 new pharmacies (including
33 opened through M&A activities). As a result, the total
number of pharmacies was 493 on March 31, 2014, 76 morethan a year earlier. Of these 35 new pharmacies are in
Higashinihon, 32 in Nishinihon, and 11 in Kyushu. On April
1, 2014, we opened 10 new pharmacies. As a result, we
operated a total of 503 pharmacies. We also advanced otherprojects, such as health care mall operation, management
contracting of medical institutions, and facility leasing.

Segment Financial Results by
Business and Region
From the fiscal year ended March 2013, Sogo Medical
reformed its organizational and management structure,
adopting a region-based structure, in order to draw up
strategies and conduct business through prompt decision
making at a regional level. Accompanying this reform, theprevious reportable segments, “Medical Practice Support”,“Pharmacies”, and “Others”, were abounded in favor of theregion-based reportable segments “Higashinihon”, “Nishinihon”, and “Kyushu”.
In this report, for the convenience of readers and toallow for comparison between years there is analysis basedon the previous segments in the “By Business” section andbased on the new segments in the “By Region” section.

By Business
Medical Practice Support
The Medical Practice Support segment comprises the provision of such services as medical management consulting for
medical institutions and doctors, the DtoD system, TV rental
for patients in hospital, leasing and installment sales of
medical equipment, and the planning, designing, andconstruction of medical facilities.
During the fiscal year under review, net sales from medical
practice support rose 35.0% year on year, to ¥29,779 million.
This growth reflects the increase in consulting sales, whichrose 25.3%, to ¥1,672 million, and leasing/installment sales,
which rose 47.3%, to ¥19,113 million. Meanwhile, operating
income expanded greatly rising 187.4%, to ¥959 million.
Results by division are provided below.
(1) Consulting
Net sales from the consulting division posted a 25.3%
increase year on year, to ¥1,672 million. Of this amount,medical institution management consulting sales rose 29.5%,
to ¥1,044 million. Sales related to support for doctors whowish to transfer or start-up practice rose 18.8%, to ¥628
million, which exceeded last year’s results. In addition to
supporting 5,066 transfer projects, a year-on-year rise of 787
projects, we also supported 314 practice start-up support
projects, a rise of 99 projects, which extended into leasing
contracts, and the opening of 28 new pharmacies.

(3) Leasing and Installment
Net sales in the leasing/installment division rose 47.3%
year on year, to ¥19,113 million.
The 258.2% increase of ¥7,767 million in medical equipment sales contributed to this. Despite lease receivables
and investment assets dropping 5.0%, to ¥2,014 million,
accounts receivables-installment sales rose 22.5%, to¥1,687 million, and operating assets rose 5.8%, to ¥3,702
million. With a solid transition, leasing contracts rose
7.3%, to ¥11,670 million.

SOGO MEDICAL CO., LTD.

2014

Net sales (¥ million)

80,22286,658103,318

Medical Practice Support

20,20122,062

29,779Consulting

1,289

1,334

1,672

Rental

7,333

5,795

5,914

Leasing andInstallment Sales

9,104

12,97919,113

Others

2,473

1,952

3,079

Pharmacies

59,062

63,42072,171

959

1,175

1,366

Operating income (¥ million)

4,848

4,324

5,014

Medical Practice Support

481

333

959

Pharmacies

4,673

4,409

4,752

Others

168

92

(115)

Elimination
and Corporate

(474)

(511)

(582)

Medical practice support
Pharmacies
OthersElimination and corporate

63,42022,062

20,201

13/3

4,673

92

14/3

2012/ 3Practice Transfer/Start-up Support
Practice transfer support
Practice start-up support(projects)

4,279

314

13/3

14/3

3,001
215

(¥ million)

1,650

4,422

4,263

4,468

14/3

2012/ 3

14/3

Sales of leasing contracts
Leasing
Installment
Sales of medical equipment(¥ million)

7,767
1,373

160
13/3

13/3

Sales in Leasing andInstallment Sales

Sales of rental contracts

2,864

2012/ 3

959
(115)
(582)

333
(511)

5,066

(2) Rental
Net sales in the rental division rose 2.0% year on year, to¥5,914 million. Thanks to the negative effects from the lastperiod’s drop in TV replacement demand diminishing, net
product sales rose 20.2%, to ¥1,650 million. However,rental sales dipped 3.6%, to ¥4,263 million.

1,334

4,409

Sales of Rental Division
Rental

1,289
4,752

481
(474)

29,779(¥ million)

1,672

168

72,171

Sales of Consulting Division(¥ million)

1,175

59,062

2012/ 342(¥ million)

1,366

2012/ 32013

Operating Income by Business

Medical practice support
Pharmacies
Others959

2012

Others(4) Others (Including the Design and Constructionof Medical Facilities)
Net sales in others division rose 57.7% year on year, to¥3,079 million.

Sales by Business

Years Ended March 31

13/3

14/3

458
383
847
7,414
2012/ 3

2,168
445
907

568
954

9,458

9,824

13/3

14/3

Annual Report 201443

Business Operations

Growth Strategy

Financial Reports

Management’s Discussion and Analysis

By Region

Pharmacies
The pharmacy division comprises dispensing pharmacies
that target patients who have received diagnoses frommedical institutions. We opened 78 new dispensing pharmacies (including 33 pharmacies from M&A activities), and as
a result the number of pharmacies at year-end was 493,
up 76 from last year, which contributed to ¥3,188 million
in net sales. Net sales from existing pharmacies rose 4.9%,
to ¥63,095 million. Sales from the 53 pharmacies opened in
the previous fiscal year was ¥4,634 million. As a result, net
sales from the pharmacy division rose 13.8%, to ¥72,171
million. Also, operating income rose 7.8%, to ¥4,752 million.

Higashinihon (West Japan)
Net sales for the year ended March 31, 2014, were ¥36,700
million, an increase of 15.6% year on year. The major factors
for the increased net sales were higher pharmacy sales in thepharmacy division, a result of contributions from new openings and higher sales from existing pharmacies, as well as arise in sales in the leasing/installment division. Operating
income was ¥1,289 million, an increase of 0.5%. The major
factors for the increased operating income were rises inincome in the consulting division and in net sales in theleasing/installment division, which offset an increase in
selling, general and administrative expenses, such as amortization of goodwill and allocation amount of common expenses.

Nishinihon (East Japan)

Number of Pharmacies / Pharmacy Sales
Number of pharmacies

Net sales (¥ million)

72,17159,062366

2012/ 363,420

493

417

13/3

14/ 3

Net sales for the year ended March 31, 2014, were ¥27,390
million, an increase of 36.5% year on year. The major
factors for the increased net sales were a large increase insales in the leasing/installment division boosted and pharmacy sales in the pharmacy division due to contributions
from new openings, including those conducted throughM&A activities, and higher sales from existing pharmacies.
Operating income was ¥1,324 million, an increase of
33.8%. The major factors were a large increase in net sales
in the pharmacy division.

Years Ended March 31

2012

2013

2014

Net sales (¥ million)

80,22286,658103,318

Higashinihon

28,22331,74736,700

Medical Practice Support

7,621

8,145

10,177

Pharmacies

20,601

23,601

26,522

18,66420,06727,390

Nishinihon
Medical Practice Support

6,038

6,341

9,863

Pharmacies

12,625

13,725

17,52637,238

Kyushu32,01033,249

Medical Practice Support

6,243

7,184

9,150

Pharmacies

25,766

26,06528,087

1,324

1,595

1,989

4,848

4,324

5,014

Higashinihon

1,282

1,282

1,289

Nishinihon

1,246

989

1,324

Kyushu

2,390

2,256

2,611

Others

353

247

346

Adjustments

(423)

(452)

(558)

OthersOperating income (¥ million)

Net Sales by Region
Higashinihon

Nishinihon

1,324

Net sales for the year ended March 31, 2014, were ¥37,238
million, an increase of 12.0% year on year. The major
factors for the increased net sales were higher pharmacy
sales in the pharmacy division, a result of higher sales
from existing pharmacies and contributions from new
openings, as well as a rise in sales in the leasing/installment division.
Operating income was ¥2,611 million, an increase of
15.7%. The major factors included the rise in income fromhigher sales in the pharmacy division and increased
income in the consulting division.

32,010Net sales for the year ended March 31, 2014, were ¥1,989
million, an increase of 24.7% year on year.
Operating income was ¥346 million, an increase of 40.2%.
These increases were due to the opening of fee-based homes
for the elderly.

SOGO MEDICAL CO., LTD.

1,595(¥ million)

27,39020,06736,70031,74728,223
2012/337,23833,24918,664

13/3

14/3

In April 2014, we launched a new medium-term management
plan. Under the theme of our new plan “Further Challenge—Toward a better society in which people can livewith a sense of security—”, we will take three priority initiatives. Those are “Under taking New Businesses,” “Improving
Existing Businesses,” and “Enhancing Corporate Value.”
In fiscal 2014, there will certainly be influences fromfactors such as revisions of medical reimbursement ofdispensing fees and drug prices, and the rise of theconsumption tax rate. However, by further promoting our
DtoD system and high-value pharmacies, we are expecting
increased net sales and profit. One of the tasks, which isfrom a previous medium-term management plan, is to aim
for achievements that better reflect market size. In order todo so, we will strengthen regional office systems, carry out
planned personnel rotations and training consultants,
develop human resource through the promotion of ourinternal certification PPI system, and accumulate assets that
do not appear on the balance sheet, which will make a basefor the future.
As for specific initiatives Sogo Medical will take, we offer
medical management support and coordination to major
regional medical institutions, design the promotion ofprojects such as health care malls, and actively make efforts
in continuing our practice start-up support and new pharmacies openings. We are expecting to take on 422 practicestart-up support projects (34.3% year-on-year rise), and toopen 85 new pharmacies (8.9% increase).
As a result of these initiatives, we forecast net sales to rise
7.5%, to ¥111,027 million. On the profit front, we anticipate
operating income to rise 4.0%, to ¥5,214 million, ordinary
income to rise 0.8%, to ¥5,111 million, and net income forthe year to rise 2.6%, to ¥2,929 million.

Operating Income by Region
Higashinihon
OthersNishinihon
Adjustments

Kyushu(¥ million)

346

353

247

2,390

2,256

1,246

989

1,282

1,282

2,611
1,324
1,289

(452)

(423)
2012/344

Others

1,989

KyushuOthersKyushuForecast for the Fiscal YearEnding March 31, 2015

13/3

(558)
14/3

Annual Report 201445

Business Operations

Growth Strategy

Financial Reports

Management’s Discussion and Analysis

2. Financial Position
Assets
As of March 31, 2014, total assets were ¥66,982 million, a
year-on-year increase of ¥9,844 million. Current assets were¥37,047 million, an increase of ¥6,863 million, owing principally to a year-on-year increase of ¥757 million increasein cash and deposits, ¥3,999 million in notes and accounts
receivable-trade, and ¥1,502 million in inventories.
Non-current assets were ¥29,934 million, an increase of¥2,981 million. This was due primarily to increases of¥2,015 million in goodwill related to M&A of pharmaciesand ¥1,214 million in buildings and structures, which counteracted a decrease in property for lease of ¥1,114 million.

Liabilities
As of March 31, 2014, total liabilities were ¥43,048 million,
an increase of ¥7,547 million year on year. Current liabilities
were ¥30,358 million, an increase of ¥6,920 million, owing
principally to increases of ¥5,306 million in notes andaccounts payable-trade, and ¥476 million in current portionof long-term loans payable. Non-current liabilities were¥12,689 million, a year-on-year increase of ¥626 million. Thiswas due to an increase of ¥1,621 million in the long-termloans payable, which offset a decrease of ¥1,153 million in
long-term accounts payable-installment purchase. Althoughinterest-bearing debts (including lease obligations andaccounts payable-installment purchases) were ¥15,552
million, an increase of ¥1,221 million. The net debt-to-equity
ratio, which is calculated by dividing interest-bearing debt lesscash and deposits by shareholders’ equity, was 0.40 times, ayear-on-year, decrease of 0.02 times.

Net Assets
As of March 31, 2014, net assets, were ¥23,934 million, a
year-on-year increase of ¥2,297 million. Net income increased
net assets by ¥2,856 million and dividends payment decreased
net assets by ¥577 million. As a result, the capital adequacy
ratio was 35.7%, a decrease of 2.1 percentage points
compared to 37.8% on March 31, 2013.

3. Financial Strategies
Cash Flows
As of March 31, 2014, cash and cash equivalents totaled¥5,851 million, a year-on-year increase of ¥755 million(14.8%). The primary factors are described below.

Cash Flows from Operating Activities
Net cash provided by operating activities was ¥7,461 million.
The major cash increases were ¥5,046 million from income
before income taxes, ¥3,522 million from adjustment for
depreciation and amortization, and ¥4,932 million fromincrease in notes and accounts payable-trade. The major cash
decreases were ¥3,468 million from increase in notes andaccounts receivable-trade, ¥1,222 million from increase ininventories, and ¥1,842 million from income taxes paid.

Cash Flows from Investing Activities
Net cash used by investing activities was ¥5,335 million. Major
cash outflows were ¥3,308 million for purchase of own-usedassets and ¥2,277 million for purchase of investments in
subsidiaries resulting in charge in scope of consolidation.

Cash Flows from Financing Activities
Net cash used by financing activities was ¥1,370 million. Major
cash inflows came in the form of ¥3,650 million in proceedsfrom long-term loans payable. Major cash outflows were
¥1,910 million for repayment of long-term loans payable,¥1,963 million for repayments of accounts installments
payable, ¥573 million for repayments of lease obligations, and¥577 million for cash dividends paid.

Trends in Cash Flows
Operating cash flow
Free cash flow

Investment cash flow

7,461

7,269
4,484

2012/ 3

Shareholder Returns

On March 31, 2014, despite an increase in cash and deposits
due to factors including cash flows from operating activities,
there were also long-term loans payable from financing,which led to the net-debt-to-equity ratio staying at 0.4 times,
the same as last year.
Under our previous medium-term management plan, we
aimed to be leaders in practice start-up support and in thenumber of high-value pharmacies. With our DtoD system as
our starting point, we made efforts to expand business. We
accelerated the openings of new pharmacies, and we also
actively took challenges in new fields like the long-term carebusiness and management contracting. In our new mediumterm management plan, we plan on continuing these plans.
Therefore, we are anticipating that suitable funds will beneeded to achieve these goals in the year to come.
Capital for the 78 new pharmacies (including 33 pharmacies from M&A transactions), that we opened in the fiscal
year ended March, 2014, was provided from our retained
earnings as well as financial institution loans and leasing.
To realize good medicine, Sogo Medical must not only
target the stable management of medical institutions; we mustalso achieve stable management ourselves. Holding to thebasic principle of expanding shareholders’ equity through theaccumulation of income, while considering an appropriate
level of debt leveraging, we seek to maintain a net debt-toequity ratio of 0.5 times. While making steady progress in linewith our growth strategies, we must at the same time shore
up our financial base. We recognize that in the future, wemust step up our efforts to create a balanced capital structure.

Our basic policy on shareholder returns is to maintain apayout ratio of approximately 20%. Owing to our increasein net income during the year under review, our dividend
remained the same as last year, ¥80 per share. We recognize that there are calls to raise our payout ratio further,
but at present we consider it important to retain earnings
to avoid degrading our financial base over the long term,
and we intend to apply the cash on hand toward investment in growth in order to expand the scale of our business
operations. Through this investment in growth, we expect
our stock price to rise, and we aim to pay back shareholders through increases in the value of their shares.
We also recognize raising the liquidity of our shares as
an important issue from the standpoint of capital policy.
We expect the number of Sogo Medical shareholders toincrease in the future as our trading volume grows and toachieve this increase. In order to attract the attention ofnumerous investors, we are hoping to expand our market
capitalization to ¥50 billion in the short term, and then to¥100 billion in the medium-to-long term. The first step torealizing this goal is to work toward the achievement of
our new medium-term management plan.

Interest-Bearing Debt / Net Debt-to Equity Ratio

Trends in Dividends

Interest-bearing debt (¥ million)

14,579Net debt- to equity ratio (times)

14,330

Dividend payout ratio (%)

80

80

70
0.4

2,126

Dividends (¥)

15,552

0.5

3,888

397

(4,086)(¥ million)

Issues on the Financial Front

0.4

20.2

(3,380)

22.8

20.2

(5,335)
13/3

14/3

2012/ 3

13/3

14/3

2012/ 3

13/3

14/3

Note: “Free cash flow = cash flows from operating activities + cash flows from investing”

46

SOGO MEDICAL CO., LTD.

Annual Report 201447

Business Operations

Growth Strategy

Financial Reports

Risk Information

Business Risks
Business risks related to the operational performance
reported in this annual report that have a possibility of materially affecting investor decisions are listed below.
Points regarding future events are based on judgments
made as of June 20, 2014.

1. Pharmacies
A. Dispensing pharmacies and separation ofdispensing and prescribing functions
In order to increase the quality of healthcare, the Japanese
government is pursuing policies encouraging the separationof prescribing and dispensing functions so that medical institutions focus on medical activities such as medical treatment
and dispensing pharmacies provide drug history management, patient compliance instructions, and other services.
However, if the degree of separation reduces in the future,
this could have an effect on new pharmacy openings andthe overall performance of pharmacies.

B. Dispensing pharmacy regulations
To perform dispensing duties within our group, it isnecessary to receive permission to open a new pharmacy
and designation as a health insurance pharmacy fromthe prefectural or city governor, as well as other kindsof designation as necessary. In the unlikely event that a
pharmacy was forced to suspend business or was closed
down as the result of a legal infraction or some otherreason, this could have an effect on the performanceof pharmacies.

C. Drug price and dispensing fee revisions
Dispensing sales comprise revenue from drugs anddispensing fees. Revenue from drugs is based on official
prices called the Drug Price Standards decided under the
Health Insurance Act, while revenue from dispensing fees isalso based on fees decided under the same act. Changes indrug prices and dispensing fees as a result of official revisions could have an effect on the performance ofpharmacies.

48

SOGO MEDICAL CO., LTD.

2. Rental
A. Rental transactions
D. Dispensing errors
Our Group treats the prevention of dispensing errors as animportant issue, therefore we increase the skill and knowledge of pharmacists through training and implement multiple
checks and a dispensing error prevention system. Our Group
has also taken out liability insurance for pharmacists in all its
pharmacies as a precautionary measure. However, in thecase of a major dispensing error leading to loss of publictrust, financial losses from lawsuits, or other losses, this could
have an effect on the performance of pharmacies.

Sogo Medical operates a system whereby patients pay to use
TVs and other items that are placed in medical institutions
based on rental contracts. Net sales from rental transactions(revenue from rental fees) vary based on the number of TVs
and the rental fee. Presently, there is a downward trend in
the number of beds, which is having a knock-on effect on
the number of TVs in medical institutions. Revenue fromrental fees is affected by the number of beds, how muchthey are used, and how many hours patients watch TV.

B. Responding to technological advances
E. Consumption tax
Under the Consumption Tax Act, dispensing sales are notsubject to consumption tax, but pharmaceuticals purchasedby our Group are taxable under the act. Consequently,
consumption tax paid by our Group on purchases isrecorded as consumption tax on the statement of income aspart of dispensing cost of sales. When consumption tax was
introduced and later increased, the increase was taken into
account in drug price revisions and the Company was alsoable to have it taken into account when negotiating with our
suppliers. However, if future rises in consumption tax are
not reflected in drug prices or our suppliers’ prices, this
could have an effect on the performance of pharmacies.

F. Recruitment of pharmacists andthe pharmacy opening plan
Under the Pharmaceutical Affairs Act, a fixed number ofpharmacists are required at dispensing pharmacies andunder the Pharmacists Act dispensing duties must be
performed by pharmacists. Our Group presently has enoughpharmacists at all its pharmacies to meet the criteria of thePharmaceutical Affairs Act. Our Company also has a pharmacist recruitment plan based on its new pharmacy opening
plan and by implementing recruitment activities and supplementing the main period of hiring in recruitment season
with initiatives throughout the year, our Group expects torecruit enough pharmacists such that there will be no obstacles to its pharmacy opening plan. However, if it proves
impossible to recruit enough pharmacists or if our Group’s
pharmacy opening plan is delayed and recruitment
nonetheless goes ahead, so that for a time there are more
pharmacists than are needed, this could have an effect on
the performance of pharmacies.

The shift to digital-only terrestrial broadcasting in July
2011 is now complete, but if it became necessary to
respond to a similar advance in technology, while there
would be the possibility of exploiting new business
opportunities, such as through product development,
obsolescence of existing equipment and subsequent
investment could have an effect on the performanceof the rental division.

C. Consumption tax
When consumption tax is increased, if it is impossible toreflect that in TVs rental fees for patients or to absorb it
through the cutting of costs, it could have an effect on theperformance of the rental division.

3. Leasing / installment
A. Changes in interest rates
Ultralow interest rate policies in the leasing/installment business environment have led to increasingly fierce competition
with other companies over lease fees. Leasing/installment
contracts and profit margins are affected by changes ininterest rates.

B. SalesTo increase the efficiency of funds collection, Sogo Medicalsells part of the equipment from the contracts it acquires
during the fiscal year and records this on the statement ofincome as sales. These sales transactions refer to sales toanother leasing company of the equipment from the leasing
contracts or installment contracts agreed with customers. We
collect receivables from customers and pay that money tothe leasing company. We make profit from the difference
between the purchasing price from the supplier and theselling price to the leasing company. If sales increase,
unearned lease contract and installment receivables decrease
and revenue from lease fee and installment sales also
decrease.

4. DtoD promotion
The DtoD system supports practice succession,
healthcare cooperation, and doctors changing practice.
The system helps to solve problems by comprehensively
providing assistance to doctors wishing to start orchange practice, doctors in practice seeking successors,and medical institutions looking for excellent doctors
and healthcare partners. Revenues from the DtoD systemcome not only directly in such forms as introduction fees
as part of doctor transfer support and consulting fees for
doctors starting new practices but also indirectly throughrelated business expansion that increases productivity
and profitability.
As the number of doctors in public practice, medical
practice owners, and medical institutions registered in thesystem increases, DtoD results will steadily improve. As afundamental strategy, Sogo Medical plans to further promoteand strengthen the DtoD system and expand its business.
However, if DtoD business expansion does not go according
to plan, it could have an effect on our performance.

5. Personal information protection
The Group handles personal information as defined in theProtection of Personal Information Act in all of its various
businesses. In 2006, our Group acquired privacy mark certification and we are working to prevent personal information
leaks. However, if it should happen that personal information was leaked, loss of public trust, financial losses fromlawsuits, or other losses could affect our performance.

Annual Report 201449

Business Operations

Growth Strategy

Financial Reports

Consolidated Financial Statements

Consolidated Balance Sheet(Millions of Yen)

2012

2013

2014

2012

2013

2014

Apr.1, 2011–
Mar.31, 2012

Apr.1, 2012–
Mar.31, 2013

Apr.1, 2013–
Mar.31, 2014

Apr.1, 2011–
Mar.31, 2012

Apr.1, 2012–
Mar.31, 2013

Apr.1, 2013–
Mar.31, 2014

13,414

15,065

20,372

260

330

350

1,297

1,679

2,155

Liabilities

AssetsCurrent liabilities

Current assets
Cash and deposits

4,004

5,115

5,873

Notes and accounts payable-trade

Notes and accounts receivable-trade

14,823

14,32718,326

Short-term loans payable

Accounts receivable-installment sales

1,404

1,377

1,687

Current portion of long-term loans payable

Lease receivables and investment assets

2,175

2,120

2,014

Inventories

3,928

4,973

6,475

746

687

762

1,532

1,595

1,933

(23)

(13)

(26)

28,59230,18437,047

Deferred tax assets
Other
Allowance for doubtful accounts
Total current assets
Noncurrent assets

Lease obligations

547

519

503

Accrued expenses

1,381

1,541

1,725

Income taxes payable

1,156

1,077

1,333

Deferred profit on installment sales

157

129

175

Other

3,493

3,093

3,743

Total current liabilities

21,70923,43730,358

3,747

3,570

5,191

912

824

944

6,240

5,604

4,450

Noncurrent liabilities
Long-term loans payable

Property, plant and equipment

Lease obligations

Property for lease

8,723

7,985

6,871

Long-term accounts payable-installment purchase

Buildings and structures, net

4,398

6,203

7,418

Other

1,038

2,064

2,103

Land

2,650

3,018

3,078

Total noncurrent liabilities

11,93912,063

12,689Other, net

1,544

1,591

2,065

33,64835,50143,048

Total property, plant and equipment

17,315

18,79919,433

Capital stock

3,513

3,513

3,513

Capital surplus

4,136

4,136

4,136

Retained earnings

12,788

14,77917,058Treasury stock(1,043)(1,043)(1,043)

Total shareholders’ equity

19,395

21,386

23,665

Valuation difference on available-for-sale securities

116

222

240

Total accumulated other comprehensive income

116

222

240

—

1

—

Total liabilities
Net assets
Shareholders’ equity

Intangible assets
Goodwill

2,736

3,279

5,294

Other

812

711

953

3,548

3,990

6,248

Investment securities

1,321

1,290

1,008

Deferred tax assets

664

587

568

1,717

2,294

2,681

(0)

(8)

(5)

3,703

4,163

4,252

Minority interests

24,56826,95329,934

Total net assets

53,16057,13866,982

Total intangible assets
Investments and other assets

Other
Allowance for doubtful accounts
Total investments and other assets
Total noncurrent assets
Total assets

50(Millions of Yen)

SOGO MEDICAL CO., LTD.

Accumulated other comprehensive income

Subscription rights to shares

Total liabilities and net assets

—

26

28

19,511

21,63623,934

53,16057,13866,982

Annual Report 201451

Business Operations

Growth Strategy

Financial Reports

Consolidated Financial Statements

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income(Millions of Yen)

Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating income
Non-operating income
Dividends income
Dividends income of life insurance
Rent income
Other
Non-operating expenses
Interest expenses
Other
Ordinary income
Extraordinary income
Gain on sales of investment securities
Contributed income
Extraordinary loss
Impairment loss
Loss on sales of investment securities
Loss on valuation of investment securities
Dismantlement expense
Litigation expenses
Office transfer expenses
Income before income taxes
Income taxes-current
Income taxes-deferred
Total income taxes
Income before minority interests
Minority interests in income
Net income

52

SOGO MEDICAL CO., LTD.

(Millions of Yen)

2012

2013

2014

2012

2013

2014

Apr.1, 2011–
Mar.31, 2012

Apr.1, 2012–
Mar.31, 2013

Apr.1, 2013–
Mar.31, 2014

Apr.1, 2011–
Mar.31, 2012

Apr.1, 2012–
Mar.31, 2013

Apr.1, 2013–
Mar.31, 2014

80,222
67,186
13,035
8,187
4,848
140
21
10
29
78
107
53
53
4,881
—
—
—

86,65873,503
13,155
8,831
4,324
151
15
12
30
93
132
67
65
4,343
201
178
23

103,318
88,88914,428
9,414
5,014
183
16
—
35
130
128
57
71
5,068
48
41
7

2,504

2,537

2,858

55
55
2,560

106
106
2,643

18
18
2,876

2,560
—

2,638
5

2,874
2

118

85

70

20
—
53
44
—
—
4,762
1,949
308
2,258
2,504
—
2,504

4
—
6
—
39
35
4,460
1,747
175
1,922
2,537
5
2,532

34
26
—
—
—
9
5,046
2,082
105
2,187
2,858
2
2,856

Income before minority interests
Other comprehensive income
Valuation difference on available-for-sale securities
Total other comprehensive income
Comprehensive income
Comprehensive income attributable toComprehensive income attributable to owners of the parent
Comprehensive income attributable to minority interests

Consolidated Statements of Change in Net Assets(Millions of Yen)
Accumulated
other comprehensive income

Shareholders’ equity

Balance at theend of 2011
Dividends from surplus
Net income
Purchase oftreasury stock
Net changes of
items other thanshareholders’ equity
Balance at theend of 2012
Dividends from surplus
Net income
Purchase oftreasury stock
Net changes of
items other thanshareholders’ equity
Balance at theend of 2013
Dividends from surplus
Net income
Purchase oftreasury stock
Net changes of
items other thanshareholders’ equity
Balance at theend of 2014

Retainedearnings

Treasury
stock

Total
shareholders’equityValuationdifference on
available-for-salesecurities

Subscription
rightsto shares

Minority
interests

Net assets

Capital stock

Capital surplus

3,513
—
—

4,136
—
—

10,753(469)
2,504(1,043)——17,360
(469)
2,504

60
—
—

—
—
—

—
—
—

17,421
(469)
2,504

—

—

—

(0)

(0)

—

—

—

(0)

—

—

—

—

—

55

—

—

55

3,513
—
—

4,136
—
—

12,788(541)
2,532(1,043)——

19,395
(541)
2,532

116
—
—

—
—
—

—
—
—

19,511
(541)
2,532

—

—

—

(0)

(0)

—

—

—

(0)

—

—

—

—

—

106

1

26

133

3,513
—
—

4,136
—
—

14,779(577)
2,856(1,043)——

21,386
(577)
2,856

222
—
—

1
—
—

26
—
—

21,636
(577)
2,856

—

—

—

(0)

(0)

—

—

—

(0)

—

—

—

—

—

18

(1)

2

18

3,513

4,136

17,058(1,043)

23,665240—

28

23,934

Annual Report 201453

Business Operations

Growth Strategy

Financial Reports

Consolidated Financial Statements

Consolidated Statements of Cash Flows

Segment Information(Millions of Yen)

Net cash provided by (used in) operating activities
Income before income taxes
Depreciation and amortization
Impairment loss
Interest and dividends income
Capital cost and interest expenses
Decrease (increase) in notes and accounts receivable-trade
Decrease (increase) in accounts receivable-installment
Net decrease (increase) in lease receivables
and investment assets
Decrease (increase) in inventories
Increase (decrease) in notes and accounts payable-trade
Increase /decrease/ in other assets/liabilities
Other, net
SubtotalInterest and dividends income received
Interest expenses paid
Income taxes paid
Net cash provided by (used in) operating activities
Net cash provided by (used in) investing activities
Purchase of own-used assets
Proceeds from sales of own-used assets
Purchase of property for lease
Purchase of investment securities
Proceeds from sales of investment securities
Purchase of investments in subsidiaries resulting in change
in scope of consolidation
Payments of loans receivable
Other, net
Net cash provided by (used in) investing activities
Net cash provided by (used in) financing activities
Net increase (decrease) in short-term loans payable
Proceeds from long-term loans payable
Repayment of long-term loans payable
Repayments of lease obligations
Repayments of installment payables
Cash dividends paid
Purchase of treasury stock
Other, net
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period

54

SOGO MEDICAL CO., LTD.

2012

2013

2014

Apr.1, 2011–
Mar.31, 2012

Apr.1, 2012–
Mar.31, 2013

Apr.1, 2013–
Mar.31, 2014

4,762
2,821
20
(21)
131
(3,408)
(268)

4,460
3,267
4
(17)
148
622
(1)

5,046
3,522
34
(18)
126
(3,468)
(264)

(234)

54

106

29
856
1,256
496
6,444
21
(130)
(1,850)4,484(1,003)
1,529
(118)
261
9,207
17
(148)
(1,807)
7,269(1,222)
4,932
181
439
9,416
18
(130)
(1,842)
7,461(1,476)
—
(225)
(429)
—

(3,032)
349
(74)
—
341

(3,308)
88
(69)
(97)
444

(1,971)—15(4,086)

(455)
(191)
(317)
(3,380)(2,277)—(115)(5,335)

(10)
3,150
(950)
(517)
(1,372)
(469)
(0)
—
(170)
227
3,756
3,984

(12)
1,500
(1,376)(593)(1,755)(541)(0)
1(2,777)
1,111
3,984
5,095

6
3,650
(1,910)(573)(1,963)
(577)
(0)
(1)
(1,370)
755
5,095
5,851

2012 (from April 1, 2011 to March 31, 2012)(Millions of Yen)

Reportable Segments
Higashinihon Nishinihon

Sales
Unaffiliated sales
Intersegment sales
Total
Segment profit
Segment assets

28,22346
28,2691,282
16,316

18,664
16
18,681
1,246
11,795

KyushuTotal

32,0107
32,0182,390
15,841

78,89871
78,9694,918
43,953

Others*1

Total

Reconciliations*2

Consolidated
amounts*3

1,324
512
1,836
353
1,584

80,222583
80,806
5,272
45,538

—
(583)
(583)
(423)
7,622

80,222—80,222
4,848
53,160Notes:*1. Others include items such as TV rental for hotels, which are not classified as reportable segments.
*2. Reconciliations were as follows:(1) Reconciliation for reportable segment loss (¥423 million) included elimination of intersegment sales (¥11 million) and overall corporate expense (¥-435 million).
The overall corporate expense was classified as selling, general and administrative expenses and was not allocated to reportable segments.
(2) Reconciliation for reportable segment assets (¥7,622 million) included elimination investment against equity (¥-4,656 million) and overall corporate assets (¥12,801 million).
The overall assets were classified as parent company’s deposits and were not allocated to reportable segments.
*3. Reportable segment profits were reconsolidated with the operating income of the consolidated income statement.

2013 (from April 1, 2012 to March 31, 2013)(Millions of Yen)

Reportable Segments
Higashinihon Nishinihon
KyushuSales
Unaffiliated sales
Intersegment sales
Total
Segment profit
Segment assets

31,74725
31,772
1,282
19,09320,067
11
20,079989
11,54733,2493
33,253
2,256
15,123

Total

85,063
41
85,104
4,529
45,764

Others*

1

1,595
810
2,406
247
3,278

Total

86,658851
87,5104,776
49,042

Consolidated
Reconciliations*amounts*3
2

—
(851)
(851)
(452)
8,095

86,658—86,658
4,324
57,138Notes:*1. Others include items such as TV rental for hotels, which are not classified as reportable segments.
*2. Reconciliations were as follows:(1) Reconciliation for reportable segment loss (¥452 million) included elimination of intersegment sales (¥6 million) and overall corporate expense (¥-459 million).
The overall corporate expense was classified as selling, general and administrative expenses and was not allocated to reportable segments.
(2) Reconciliation for reportable segment assets (¥8,095 million) included elimination investment against equity (¥-5,114 million) and overall corporate assets (¥13,985 million).
The overall assets were classified as parent company’s deposits and were not allocated to reportable segments.
*3. Reportable segment profits were reconsolidated with the operating income of the consolidated income statement.

2014 (from April 1, 2013 to March 31, 2014)(Millions of Yen)

Reportable Segments
Higashinihon Nishinihon
KyushuSales
Unaffiliated sales
Intersegment sales
Total
Segment profit
Segment assets

36,70019
36,7191,289
22,93627,390346
27,737
1,324
15,651

37,2383
37,241
2,611
16,524

Total

101,329369
101,698
5,225
55,112Others*1

Total

1,989
2,457
4,446
346
3,285

103,3182,826
106,145
5,572
58,398

Consolidated
Reconciliations*2
amounts*3—(2,826)(2,826)
(558)
8,584

103,318—
103,318
5,014
66,982

Notes:*1. Others include items such as TV rental for hotels, which are not classified as reportable segments.
*2. Reconciliations were as follows:(1) Reconciliation for reportable segment loss (¥558 million) included elimination of intersegment sales (¥5 million) and overall corporate expense (¥-563 million).
The overall corporate expense was classified as selling, general and administrative expenses and was not allocated to reportable segments.
(2) Reconciliation for reportable segment assets (¥8,584 million) included elimination investment against equity (¥-7,529 million) and overall corporate assets (¥17,040 million).
The overall assets were classified as parent company’s deposits and were not allocated to reportable segments.
*3. Reportable segment profits were reconsolidated with the operating income of the consolidated income statement.

Annual Report 201455

Corporate Information (As of June 1, 2014)

Stock Information (As of March 31, 2014)

Corporate Outline

Certified Professionals

Shareholder Composition(Including part-time workers)
Company NameSOGO MEDICAL CO., LTD.

Head Office

Fukuoka Tenjin Center Bldg. 16F, 2-14-8 Tenjin, Chuo-ku, Fukuoka

NursesFoundedJune 12,1978

Public health nurses

Capital¥3,513 million

Nutritionists

9 people

ListedFirst Section, Tokyo Stock Exchange. (Code 4775)

Clinical test technicians

7 people

Banking
Relationships

The Bank of Fukuoka, Ltd., Mizuho Bank, Ltd., The Kitakyushu Bank, Ltd., Sumitomo
Mitsui Banking Corp., The Kiyo Bank, Ltd., The Norinchukin Bank, The Miyazaki Bank,
Ltd., The Oita Bank, Ltd., The Gunma Bank, Ltd., Mitsubishi UFJ Trust and Banking
Corporation, The San-in Godo Bank, Ltd., The Hiroshima Bank, Ltd., The Senshu Ikeda
Bank, Ltd., The 77 Bank, Ltd., The Bank of Tokyo-Mitsubishi UFJ, Ltd., The Bank of
Yokohama, Ltd., The Nishi-Nippon City Bank, Ltd., The Kita-Nippon Bank, Ltd., The
Joyo Bank, Ltd., The Chiba Bank, Ltd., The Bank of Kyoto, Ltd., The Shizuoka Bank,
Ltd., The Hachijuni Bank, Ltd., The Bank of Saga, Ltd., The Eighteenth Bank, Ltd., The
Higo Bank, Ltd., The Kagoshima Bank, Ltd., The Chikuho Bank,Ltd., etc.

Certified social worker
Certified care worker

Pharmacists

Somtech Co., Ltd. (design and construction of hospitals,
clinics and assisted living facilities)
Sogo Medical Pharmacy Chubu Co., Ltd. (dispensing pharmaceuticals)
Aoba Pharmacy Co., Ltd. (dispensing pharmaceuticals)
Maeda & Co., Ltd. (dispensing pharmaceuticals)
Yataya Pharmacy Co., Ltd. (dispensing pharmaceuticals)
Sumiredo Pharmacy Co., Ltd. (dispensing pharmaceuticals)
Taikodo yakkyoku honten Co., Ltd. (dispensing pharmaceuticals)T∙M Yakkyoku Co., Ltd. (dispensing pharmaceuticals)
Care Medical Co., Ltd. (dispensing pharmaceuticals)
Beauty Drug Saito Co., Ltd. (dispensing pharmaceuticals)
Nakano Pharmacy Co., Ltd. (dispensing pharmaceuticals)
Sogo Media Supply Co., Ltd. (TV rental service for hotels)
Sogo Medipro Co.,Ltd. (temporary service, placement service)
Sogo Real Estate Co., Ltd. (lease and management business for medical facilities)
SME Co., Ltd. (wholesale of pharamaceuticals)
Sogo Care Network Co., Ltd. (assisted living facility related business)
Sun Villa Co., Ltd. (assisted living)Group
Companies

Bases

558 (Offices 3, Branches 23, Sales Offices 4, Satellite Offices 1, Pharmacies 509,
in-hospital stores 18)

Employees (People)

2,846 full-time workers, 1,192 part-time workers

1,547 people

Total Number of Issued Shares

Major Shareholders (Top 10 Largest Shareholders)

7,670,078 shares

Number of Shares Held(thousands of shares)

Shareholding Ratio

1,550

21.5%

361

5.0%

5 people

THE SFP VALUE REALIZATION MASTER FUND LIMITED(Standing proxy: Citybank Japan Ltd.)

316

4.4%

25 people

The Bank of Fukuoka, Ltd.

307

4.3%

LTC support specialists (care managers)

46 people

Hirosada Oyamada

226

3.1%

Grade 1 architects

17 people

The Kitakyushu Bank, Ltd.

202

2.8%

Interior coordinators

7 people

Employees Shareholders’ Association of Sogo Medical

137

1.9%

Real estate dealers

49 people

Japan Trustee Services Bank, Ltd. (Trust account)

117

1.6%

The Master Trust Bank of Japan, Ltd. (Trust account)

106

1.5%

Kentaro Kannou

96

1.3%

SMEC (Small and Medium EnterpriseManagement Consultants)

11 people

Number of Shareholders

6,355 shareholders

1 person

Number of Unit Shareholders

5,777 shareholders

Name of Shareholders
MITSUI & CO., LTD.
Century Tokyo Leasing Corporation

3 people

Medical management consultants certified and registered by the Japan Association of Health Service
Management Consultants

30 people

Affiliated financial planners certified by the Japan
Association for Financial Planners

30 people

Start-up Support Certification (PPI) above level III

89 people

Personnel Introduction Certification (PPI)
above level III

101 people

Pharmacy Management Certification (PPI)
above level III

86 people

Ratio of controlling shares are calculated excluding Sogo Medical treasury stocks (450 thousands shares).

Breakdown of Shares by Type of Shareholder

Note:
Level V is the highest level of the Practice Process Innovation (PPI)internal certification. Numbers are from the end of March 2014.

Number ofshares7,670
thousandsharesFinancial Institutions
1,519 thousand shares (19.8%)

Financial Institutions
29 shareholders (0.5%)

Securities Firms
41 thousand shares (0.5%)

Securities Firms
22 shareholders (0.3%)

Other Companies
2,046 thousand shares (26.7%)

Other Companies
58 shareholders (0.9%)

Number ofshareholders
6,355

Foreign Companies, etc.
1,389 thousand shares (18.1%)

Foreign Companies, etc.
100 shareholders (1.6%)

Individuals and Others
2,221 thousand shares (29.0%)

Individuals and Others
6,146 shareholders (96.7%)

Treasury Stock
450 thousand shares (5.9%)

Corporate Timeline
Established Sogo Medical Leasing Co., Ltd. with a capitalization of ¥20
million, for business purposes of leasing medical equipment and consulting
for medical institutions.

Jan. 2011

Started wholesale marketing of medical and pharmaceutical products.

Oct. 2011

Acquired all outstanding shares of Maeda Pharmacy Co., Ltd., a dispensing
pharmacy.

Oct. 1987

Started real estate agency and practice inheritance businesses.

Nov. 2011

Nov. 1987

Started the TV rental business for patients.

Started long-term care service businesses, such as residential homes forthe elderly.

Jun. 1988

Established the first “Sogo Pharmacy,” a dispensing pharmacy.

Jun. 2012

Oct. 1989

Name changed to SOGO MEDICAL CO., LTD.

Acquired all outstanding shares of Sun Villa Co., Ltd., a fee-based homes forthe elderly.

Nov. 1989

Started the “Green Members” (now “Succeed Members”) member systemtargeted to medical personnel.

Nov. 2012

Acquired all outstanding shares of Yataya Pharmacy Co., Ltd.

Dec. 2012

Oct. 1994

Started the planning, design, and construction of medical facilities.

Acquired all outstanding shares of Sumiredo Pharmacy Co., Ltd., a dispensing pharmacy.

Aug. 2000

Listed on Second Section of Tokyo Stock Exchange.

Apr. 2013

Apr. 2001

Acquired all outstanding shares of Orix Media Supply Co., Ltd., a company
that carried out TV rentals for hospitals, etc.
Opened stores within hospitals.

Absorption-type merger with Sogo Medical Pharmacy Kanto Co., Ltd., adispensing pharmacy.

Aug. 2013

Acquired all outstanding shares of Taikodo yakkyoku honten Co., Ltd. and TM
Yakkyoku Co., Ltd., which are dispensing pharmacy companies.

120

Sep. 2001

Listed on First Section of Tokyo Stock Exchange.

Dec. 2013

Oct. 2001

Started the DtoD system.

Acquired all outstanding shares of Care Medical Co., Ltd., a dispensing
pharmacy.

90

Jan. 2002

Acquired all outstanding shares of Hello Medical Co., Ltd., Hello Network
Co., Ltd. and Hase Dispensing Pharmacy Co., Ltd., which are dispensing
pharmacy companies.

Mar. 2014

Acquired all outstanding shares of Beauty Drug Saito Co., Ltd. and Nakano
Pharmacy Co., Ltd., a dispensing pharmacy.

60

Apr. 2014

Absorption-type merger with Sogo Healthcare Service Co., Ltd.

Jun. 1978

56

Share Price and Trading Volume

Dec. 2003

Started temporary introduction and placement service of othermedical staff.

Apr. 2005

Started hospital operational management contracting.

Aug. 2007

Formed business alliance with MITSUI & CO., LTD.

Jun. 2010

Acquired all outstanding shares of Aoba Pharmacy Co., Ltd., a dispensing
pharmacy.

SOGO MEDICAL CO., LTD.

Share Price (yen)
5,000
4,000
3,000
2,000
0

Trading Volume (ten thousand shares)
150

30
0

4

5

6

7

8 9 10 11 12 1
2011

2

3

4

5

6 7
2012

8

9 10 11 12 1

2

3

4

5

6 7
2013

8

9 10 11 12 1

2

3 4
2014

5

For further inquiries, please contact: SOGO MEDICAL CO., LTD., Management Strategy Division, Public and Investor Relations Division
TEL: +81-92-713-9181 E-mail: ir@sogo-medical.co.jp http://www.sogo-medical.co.jp/english/

Annual Report 201457

Fukuoka Tenjin Center Bldg. 16F,
2-14-8 Tenjin, Chuo-ku, Fukuoka

www.sogo-medical.co.jp/english/

Printed in Japan